The Objective Is To Move Towards A Single Excise Rate
Sir, I beg to move -
2. That the Bill to give effect to the financial proposals of the Central Government for the financial year 1996-97 be taken into consideration.
(Extempore)
3. Now, I will turn to the changes I propose in the clauses pertaining to Direct Taxes.
4. Clause 11 of the Bill seeks to amend section 32 of the Income-tax Act, 1961 relating to depreciation. During the course of discussion on General Budget, a number of Hon'ble Members have expressed their apprehension that the proposed amendment limiting carry forward of unabsorbed depreciation to eight years will adversely affect the growth of industry. Similar apprehensions have been raised in a large number of post-budget memoranda. I would like to allay these fears. The proposed amendment is only prospective in as much as the cumulative unabsorbed depreciation brought forward as on 1st April, 1997 can still be set off against taxable business profits or income under an other head for assessment year 1997-98 and seven subsequent assessment years. Therefore, the proposed change will have effect only after eight years and there is no cause for immediate concern about its likely impact on industry. Eight years is a period long enough for industry to adjust itself to the new dispensation and provide for depreciation accordingly. A number of Hon'ble members have brought to my notice that the proposed amendment may adversely affect sick companies. I accept the suggestions made by them. I, therefore, propose to provide that the time limit of eight years shall not apply to sick companies, during the period the company is treated as a `sick company' under Sick Industrial Companies (Special Provisions) Act 1985.
5. I further propose to make a drafting amendment in clause 11 to clarify that the depreciation for the year can be set off not only against profits and gains of any business carried on by the assessee but also against income under any other head, as is the case with the set off business losses.
6. Clause 14 of the Bill, inter alia, seeks to amend section 36 of the Income-tax Act with a view to defining the term long-term finance to mean any loan or advance where the terms under which moneys are loaned or advanced provide for repayment along with interest thereof during a period of not less than seven years. Representations have been received from financial institutions that the period of seven years is rather long and should be reduced. After considering the matter, I propose to reduce the period to five years.
7. Hon'ble members will recall that I introduced, through clause 16 of the Bill, a new Explanation to section 43 of the Income-tax Act to deal with sale and lease back transactions which were widely misused by leasing companies resulting in substantial loss of revenue. However, I am given to understand that even the proposed amendment may be circumvented through successive sales of the asset thus defeating the purpose of the amendment. Therefore, in order to thwart any attempt to do so, a modification to the aforesaid Explanation is being proposed to the effect that in the case of successive sales of the asset also the written down value in the books of the original seller will be taken as the cost of the lessor.
8. I also propose an amendment in clause 17 of the Bill which seeks to modify the provisions of section 43B of the Income-tax Act. This is necessary in order to remove the doubt that in cases where bank interest has been earlier claimed and allowed on due basis, such interest will not be allowed for the second time on the cash basis. I am also proposing that only interest on term loans of the banks will be covered by the amendment proposed to the provisions of section 43B.
9. Clause 19 of the Bill proposes to insert a new section 54EA in the Income-tax Act which provides for exemption to the capital gains arising from the transfer of long-term capital assets if the net consideration is invested in any bonds or debentures specified in this behalf by notification in the official Gazette. While replying to the debate on the budget I had announced that the units of mutual funds will also be included in the assets in which a taxpayer may invest to obtain exemption from capital gains tax. To carry out this decision, I propose to amen clause 19 of the Bill.
10. Section 88 of the Income-tax Act was sought to be amended by clause 32 of the Bill, and the ceiling of Rs 60,000 was raised to Rs 70,000 for cases where investment is made in equity shares or debentures forming part of any eligible issue of capital by a public company. The eligible issue of capital was to mean an issue by a public company where the issue is wholly and exclusively for the purposes of developing, maintaining and operating an infrastructure facility or for generating, or for generating and distributing, power. It has been suggested to me that units of any mutual fund dedicated to the infrastructure or power sector should also qualify for being subscribed to for purposes of section 88. I have accepted this suggestion and, therefore, I propose to make a suitable amendment.
11. A large number of suggestions have been received from trade associations, companies and various sections of industry on the proposal regarding MAT. The matter has been raised by many Hon'ble members also. In the light of the suggestions made. I propose the following changes:-
n Exclude from the purview of MAT, profits of industrial undertakings located in industrially backward districts/states for such period for which these units are entitled to claim 100 per cent deduction under section 80IA read with the Eight Schedule of Income-tax Act.
n Exclude also the profits of sick industrial companies from the purview of MAT during the period the company is treated as a `sick company' under the Sick Industrial Companies (Special Provisions) Act, 1985.
12. Clause 35 of the Bill seeks to reduce the rate of capital gains tax for domestic companies from 30 per cent to 20 per cent. After this change, all companies, individuals and HUFs will be taxed at the rate of 20 per cent on their long-term capital gains. However, the partnership firms and associations of persons will still be taxed at 30 per cent. In order to bring uniformity in this regard, I propose to reduce the tax rate in their cases also to 20 per cent.
13. I also propose a couple of changes in the provisions not covered by the Bill. The first of these relates to sub-section (3) of section 40A of the Income-tax Act which, inter alia, deals with disallowance of a part of the expenditure incurred by an assessee, payment in respect of which is made in cash in a sum exceeding Rs 10,000. A number of representations have been received that the present limit of Rs 10,000 is too low and requires upward revision. It has been pointed out that this limit was fixed in 1987 and that it causes a lot of hardship, particularly to transport contractors, civil contractors and to the assessees in such trade where, looking to the exigencies of the business, payment has to be made in cash. I have considered the matter and find merit in the representations. Therefore, I propose to raise the limit from Rs 10,000 to Rs 20,000.
14. Another change that I propose is to pursuance of the announcement made by me last week. Section 80L of the Income-tax Act provides for a deduction from the gross total income of an individual or HUF in respect of income earned by way of interest from government securities, National Saving Certificates, deposits with banking companies, dividends from Indian companies, income from units of Mutual Funds etc, I propose that the overall ceiling under section 80L be raised to Rs 15,000 and out of this Rs 3,000 will be allowed only in respect of income from dividends from an Indian company or income received in respect of units of a Mutual Fund, including UTI.
15. Clause 54 of the Finance Bill seeks to bring to tax for wealth tax purposes, the commercial buildings which are not occupied for the purposer of business. It has been brought to my notice that commercial buildings forming part of stock-in trade may also be affected by this amendment. I see merit in this demand and, therefore, propose to exclude commercial properties forming part of stock-in-trade from the levy of wealth tax.
16. Sir, I now turn to the changes I propose in respect of Indirect Taxes.
17. I had proposed several changes in my budget proposals relating to indirect taxes. These proposals relate to further rationalising the tax structure as well as strengthening the procedures to as to achieve the twin objectives of helping the honest tax payers to reduce compliance cost and curb evasion of taxes.
18. The budget proposals have been widely welcomed by a cross section of trade and industry. Many Hon. Members have also given encouraging support. However, I have received a number of representations from many Hon'ble members in which they have suggested some changes in the overall interest of the industry. I am grateful to them for their valuable suggestions.
19. Sir, there is by now a general consensus in the country that our customs and excise duty structure should move to moderate rates of taxes applied on a wider base and our excise and customs procedures should be transparent and easy to follow. At the same time, we ought to use the tax mechanism to reduce costs and make our industry further competitive. Accordingly, I had mentioned in my budget speech that we ought to further bring down the number of excise duty rates in a year or two. At the same time, our tax structure should provide necessary relief in deserving areas.
20. I have given my earnest consideration to the suggestions made by several Hon'ble members as also by the trade and industry. I am inclined to accept that in some cases adjustment in the tax rates is called for.
21. I am informed that a uniform rate of excise duty of 10 per cent which was proposed in the budget proposals as the rate to be applied to paper and paper board made from pulp containing at least 50 per cent of non-conventional raw materials would affect many small paper mills. It has been represented that there are small paper mills which are still in need of fiscal support for some more time lest they be rendered unviable. I therefore, propose to modify the scheme of concessional excise duty for the use of non-conventional raw materials in the manufacture of paper and paper board. I propose that paper and paper board made from pulp in which at least 75 per cent of non-conventional raw material are used would be subjected to excise duty at the rate of 10 per cent. I am told that over 300 paper mills - the vast majority of mills - will fall under this category. However, in order to give a competitive edge to smaller paper mills, first clearances upto 10,000 tonnes in a financial year would be subjected to a reduced rate of duty of 5 per cent. Small paper mills can now clear virtually the whole of their production at the low rate of 5 per cent. I am confident that the tax structure now proposed would provide adequate fiscal relief to the small paper mills and also encourage use of non-conventional raw material sin a larger proportion.
22. I also propose exemption from excuse duty in a few deserving cases. Henceforth, spoons, forks, ladles, etc. falling under heading No.82.15 of the Central Excise Tariff would be exempt from excuse duty. Similarly, no excise duty will be charged on vermicelli. Absorbent cotton wool, non-absorbent cotton wool, gauze, bandages and similar articles for medical purposes would be free of excise if they are marketed without a brand name. I also propose to exempt rosin manufactured without the aid of power from excise duty.
23. Mr Speaker, Sir, products of coir industry are exempt from excise duty. We also need to encourage its production in the cottage sector which generates employment. I am informed that this sector employs a large number of women and mechanisation of some processes would help to remove their drudgery. Keeping this objective in view, I have decided to exempt specified coir processing machinery from excise duty.
24. Insulated wars of plastics will henceforth be chargeable to excise duty at the reduced rate of 15 per cent as against the rate of 20 per cent proposed in my budget.
25. Shoddy woollen yarn is chargeable to excise duty at a low rate of 5 per cent. I propose to extend a similar relief to synthetic shoddy yarn up to 10 counts. This would also facilitate the process of assessment as no distinction would be made between shoddy woolen yarn and synthetic shoddy yarn. I also propose to exempt synthetic shoddy blankets of value not exceeding Rs 100 per sq. metre from the levy of excise duty. It has been represented to me that unprocessed knitted or crocheted fabrics are generally produced in the decentralised sector. In any event such fabrics attract excise duty when they are processed. I propose to exempt unprocessed knitted or crocheted fabrics made of man made fibres from excise duty. I also propose to exempt certain specified processed narrow woven fabrics of cotton and man made fibres from excise duty.
26. I also propose to exempt Iscador, an anti-cancer drug, from customs duty and also CLIA diagnostic kits, intended to detect AIDS, etc. from customs duty.
27. In my budget proposals I had proposed to reduce the import duty on computers and computer parts to 20 per cent. I have received representations that while reduction in import duty on computers is a step in right direction, charging same rate of duty on parts of computers may adversely affect the manufacturers engaged in production of computers. I accept the logic of this argument and propose to reduce the rate of customs duty on hard disc drive, floppy disc drive and CD-ROM drive from 20 per cent to 10 per cent.
28. In my budget proposals I had proposed to reduce the customs duty on rayon grade wood pulp from 25 per cent to 5 per cent. It has been represented to me that such a steep reduction would no doubt reduce the cost of production of viscose fibre and yarn but it would adversely affect such of the rayon grade wood pulp manufacturers who market their entire production rather than consume it captively. I, therefore, propose to keep the reduction in the customs duty on rayon grade wood pulp from 25 per cent to 10 per cent.
29. Steel is the core sector of industry. Hon.Members will agree with me that our steel industry has adjusted itself admirably to the gradual reduction in customs duties. I do not wish to increase the customs duty on steel in general. However, I propose to increase the customs duty on primary forms of stainless steel, other than stainless steel slabs, from 20 per cent to 30 per cent. I also propose to reduce the customs duty on stainless steel scrap from 20 per cent to 10 per cent. This will help them to import stainless steel scrap at reasonable prices for the manufacture of blooms, billets, etc. and given them adequate protection against imports of such semi-finished goods.
30. I have made adjustment in customs duty in few more areas. I have decided to reduce the duty on methanol from 40 per cent to 30 per cent, on epichlorohydrin from 40 per cent to 30 per cent and on DBM from 50 per cent to 40 per cent.
31. In my budget proposals I had modified the customs duty structure in respect of ball on roller bearings. I have, however, received representations from manufacturers as well as traders. I have considered their view points in entirety. Henceforth ball or roller bearings of bore diameter upto 60 mm would be chargeable to customs duty at 10 per cent + Rs 150 per kg. Ball or roller bearings of bore diameter of over 60 mm would attract duty at the rate of 10 per cent + Rs 80 per kg. I have also decided that parts of ball or roller bearings would be charged to same rate of duty as applicable to the corresponding bearings.
32. I had proposed reduction in customs duty on raw materials and components for electronic industry. I am given to understand that sufficient investment is coming for increasing the production of colour picture tubes in the country. I recognise the fact that it is a capital intensive industry and some fiscal protection is necessary in the short run. For the present, therefore, I have decided to increase the customs duty on colour picture tubes from 30 per cent to 35 per cent.
33. Except for increase in customs duty on rayon grade wood pulp and colour picture tubes, all other changes would come into force from today. Copies of the notifications issued in this regard would be laid on the Table of the House in due course. Increase in customs duty on rayon grade wood pulp and colour picture tubes would come into force with effect from the date the Finance Bill is enacted.
34. The changes proposed above in respect of customs and excise duties involves a net loss of revenue of Rs 31 crore on the customs side and Rs 63 crore on the excise side in a full year.
35. With these words, I commend the Finance (No 2) Bill, 1996 to the House and request the Hon'ble Members to give their whole-hearted support to it.