The Web


Home > Business > Budget 2005-06 > Interviews

The Rediff Interview/Finance Minister P Chidambaram

'The cash withdrawal tax is not intended to be a revenue-generating measure'

BS Bureau in New Delhi | March 01, 2005

Finance Minister P Chidambaram. Photo: AFP/Getty ImagesFinance Minister P Chidambaram defends the move as necessary to check black economy.

What prompted you to tax cash withdrawal of Rs 10,000 per day?

This is not intended to be a revenue-generating measure. This is an anti-tax evasion measure. Large amounts of cash are withdrawn for no purpose and these disappear into a black hole.

The idea is that on every withdrawal of Rs 10,000 you pay a small tax of Rs 10.

A lot of people are not complaining about the purpose of the tax but the tax rate. I am surprised that such a small part of the whole Budget has come in for so much criticism. Nobody is being penalised through this measure, but I will go by what Parliament decides on this.

You have projected a 21 per cent growth in tax collections despite the slippages in excise and corporation taxes in the current year.

We are on target in three of the five tax categories. On income tax, we have got much more than the target while on service tax we are on target.

We will fall short in corporation tax and excise duty, since banks and petroleum companies have paid lower tax this year. My main worry is on excise.

Excise collection is growing at a moderate rate, partially because exports, which are growing at 20-25 per cent, get excise credit. Our view is that the tax projection is quite reasonable.

It is better to set the bar a little higher for the revenue department. Detailed calculations have gone into the tax projections and we will do our best to achieve it.

But how do you expect to mop up more tax?

Through better compliance. More people are coming into the tax net and the tax information network (TIN). Besides, seven agencies are giving us details under the annual information returns (AIR).

We will set up the tax administration unit within a month or so. I refuse to believe that there are only 70,000-80,000 people in this country who have an income of over Rs 10 lakh. The income tax (receipts) has shown a buoyant growth. All of us must do our bit.

Why hasn't the government set a disinvestment target for 2005-06?

All the divestment proceeds from April 1, 2005 will go into the National Investment Fund, which is a corpus fund. Part of the proceeds will be used for the social sector and a part will be used for infusion of capital in public sector enterprises.

Since the proceeds of the fund are neither part of the government's capital nor revenue receipts, a divestment target has not been provided for.

What is the nominal GDP growth projected for 2005-06?

It is 12 per cent for 2005-06. If you deduct the rate of inflation from this, you will get the real GDP growth rate.

How will the cess on diesel and petrol impact inflation? Also, what will be the impact of the reduction of Customs duties on crude, and excise duty on LPG and kerosene?

There will be no impact of the cess on inflation. Inflation is not determined by whether the taxes are being increased or decreased.

We have take into account the present level of crude imports and the oil prices. The entire exercise in oil duty structure is revenue neutral.

Why have you imposed a countervailing duty on imports? Isn't it the same as Special Additional Duty?

We have only taken a power to impose a CVD on imports when the value-added tax (VAT) comes into force. We have not imposed the CVD.

Moreover, this is a provision only for the ITA (Information Technology Agreement) items, which are being brought under zero-import duty from the next fiscal.

You have stated that you will not be able to fulfil the Fiscal Responsibility and Budget Management Act (FRBM) in the next fiscal?

Yes. We will not be able to comply with the FRBM next year on account of the implementation of the Twelfth Finance Commission report.

In a transition year, this is bound to happen. The revenue deficit is projected at 2.7 per cent of the GDP, the same as in 2004-05 while the fiscal deficit is projected as 4.3 per cent of the GDP against 4.5 per cent in 2004-05.

From 2006-07 onwards, we will fully comply with the FRBM for a 0.5 per cent reduction in revenue deficit and a 0.3 per cent reduction in fiscal deficit.

In any case, in the current financial year we have gone beyond the FRBM, reducing revenue deficit by 0.9 per cent against a requirement of 0.5 per cent.

You have announced your intention to consider FDI in mining, trade and pension. What prevented you from announcing relaxation in FDI caps like you did last year with civil aviation, telecom and insurance?

In the three sectors announced last year, the FDI caps were already existing. The sectors announced this year are new areas, so we have not indicated FDI limits.

There was talk of rationalising subsidies. Yet, the subsidies have increased.

The government is committed to continuing subsidies. However, we are looking at improvements. For instance, in the case of foodgrain, I have talked about decentralisation, which would mean that Food Corporation of India would be assisted by local procurement.

The YK Alagh Committee is looking into the pricing of fertilisers in the next phase from April 1, 2006 and we have already implemented the Lahiri Committee report on petroleum products.

You have increased the excise duty on steel and cement. Will this not impact prices?

There was no rationale in the previous government's decision to reduce excise on steel to 8 per cent. If steel does not pay Cenvat, then what's the meaning of a Cenvat rate? The entire duty is modvatable, so there should be no impact on steel prices.

On cement, we have only raised the specific duty on clinker. This is more of an anti-evasion measure.

You have exempted savings up to Rs 1 lakh from income tax. What sort of savings would this include?

All the savings instruments that were available under Section 88 of the Income Tax Act, would be included in the new section. There are 17-18 items in the section.

Those with an income of Rs 10 lakh and above will also get the deduction for the above investment. (Earlier, income more than Rs 8.5 lakh did not get the benefit of this deduction.)

The exemptions have been lowered on the income tax side, but I did not want to burden the Finance Bill with all these changes. We will come up with an amendment Bill on direct tax laws dealing with exemptions and procedural simplifications.

What's the rationale for a tax on fringe benefits?

It is not a new tax. What was taxable in the hands of the employees is now being taxed in the hands of the employers. Moreover, this is only on the benefits that are enjoyed collectively and do not accrue to any individual alone.

You have enhanced the Securities Transaction Tax in the Budget. How much do you expect to get from it?

We are getting Rs 100 crore a month from STT. It is expected to go up by Rs 30-40 crore. I am grateful to the broking community for accepting the marginal increase.

With the reduction in the depreciation rate, are we moving towards bringing the rates on plant and machinery in line with the rates in the Companies Act?

We have gone by the recommendations of the Kelkar Committee. We want to retain depreciation at a higher level from those in the Companies Act to encourage investments.

How do you propose to ensure efficient delivery mechanism of services in the social sector?

We have for the first time set physical goals against financial goals. The Planning Commission will work with the finance ministry once in six months to put together a mechanism under which the development outcome of the measures will be evaluated.

How much of the Budget was Congress President Sonia Gandhi's and how much of it was yours?

I think the National Advisory Council has every right to convey its views to the government. It is the government's duty to consider the NAC's suggestions with regard to implementation of the National Common Minimum Programme.

I would say that this is the government's Budget -- drafted by the finance minister, approved by the prime minister, and if I may add in parenthesis -- to be judged by the media.

Powered by

Budget 2005-06: Complete Coverage | More Interviews

Article Tools
Email this article
Top emailed links
Print this article
Contact the editors
Discuss this article

Copyright © 2006 India Limited. All Rights Reserved.