Speech of Yashwant Sinha

Part B

• Indirect tax proposals
• Direct tax proposals

Indirect tax proposals

71. Sir, I now present my tax proposals. I take up indirect taxes first.

72. Hon’ble Members are aware that both the Centre and the States depend heavily on indirect taxes. While I did carry out a major restructuring of the excise rates last year, the process needs to be taken further. We need to overhaul the rate structure, rationalise and simplify the procedures to reduce the compliance cost for the tax payer. We must ensure that we concentrate on increasing production and absorbing new technologies rather than frittering away our energies on tax disputes.

73. Sir, my proposals in excise intend to establish a single rate Central Value Added Tax (CENVAT) at the Centre. I am convinced that nothing short of this can provide long term stability, remove uncertainties in the mind of industry, and eliminate disputes of classification. This will also encourage the States to implement their agreed programme for converting their sales taxes into VAT by 1.4.2001.

74. The House may recall that in my last budget, I had introduced three ad-valorem rates of basic excise duty, viz., 8%, 16% and 24%. I propose to converge these three ad-valorem rates to a single rate of 16% CENVAT.

75. The 8% excise rate is therefore being abolished and most of the items at this rate are being moved to 16%. However, certain items, essentially covering medicare and items of use by the common man, are being exempted from the excise duty. These are:

Medical Items:

• Medicinal grade oxygen
• Medicinal grade hydrogen peroxide
• Anaesthetics
• Potassium iodate
• Medical and surgical gloves; and

Items of common use

• Cutlery and knives
• House hold glassware, including glassware produced by mouth blown process
• Electric bulbs of MRP up to Rs.20 per bulb
• Clocks and watches of MRP up to Rs.500 per piece
• Tooth powder
• Sanitary towels, napkins for babies, etc, and
• Soap for distribution through PDS

76. I am including roasted chicory in the list of exempted items as coffee itself is free from excise duty.

77. I have also decided to exempt specified cold chain equipment, which had been provided a low rate of 8% in the last budget, from excise duty in the larger public interest.

78. Some items, on account of their exceptional nature and sensitivity to price increases, deserve special treatment, at least for the present. These are Kerosene, LPG, Laundry soap, Cotton yarn, including cotton sewing thread, and some other varieties of yarns and Diesel engines up to 10 HP. The rate structure for these is, therefore, being so designed that there is no increase in the incidence of excise from the current level of 8%, and thus there will be no price increase on this account.

79. I have not made any change in the list of items that are currently charged to 16% excise duty.

80. In addition to the 16% Cenvat rate, I propose to have three rates of special excise of 8%, 16% and 24%. Unlike the CENVAT rate, the special excise duties will not generally be modvatable, that is, users will not be able to avail of MODVAT credit of these duties.

81. For the items that are mainly in the nature of raw materials or intermediates, the 16% CENVAT rate is appropriate. I, therefore, propose to include items like plastic materials, films and sheets of plastic, tread rubber, cellular rubber, articles of rubber, nylon filament yarn, transmission and conveyor belts of textile materials, and sacks and bags made of synthetic textile materials in the list of 16% CENVAT, from the current level of 24%. I am also including tyres for OE supplies and parts of air conditioning and refrigerating machinery in the list of 16% CENVAT, without subjecting them to any special excise duty, since they are intermediate goods in the chain of production.

82. In addition, I am reducing the duty burden on a few other products that are also currently charged to 24% duty. These items are sterile contact lens solution, shikakai powder without additives, and cars for physically handicapped persons. I feel that these items should not be loaded with a duty burden of more than 16% CENVAT.

83. Ambulances purchased by registered hospitals are currently charged to a concessional rate of excise duty of 16%. I am extending the same treatment to ambulances purchased by Indian Red Cross Society.

84. The other items that are currently charged to 24% duty shall continue to bear the same incidence, comprising 16% CENVAT and 8% special excise duty.

85. In my new design of excise duty structure, the items that are now charged to a total duty of 30% would be subjected to a total duty of 32%, composed of 16% CENVAT and 16% special excise duty. This is only a marginal increase of 2%, which, I am sure, the consumers of these commodities can afford to bear.

86. Items presently charged to a total duty of 40% will now be composed of 16% CENVAT and 24% special excise duty. However, soft drink concentrate supplied to bottlers will be charged to CENVAT at 16% only, being modvatable.

87. Let me now take up the MODVAT scheme and the changes that I plan to bring about. MODVAT scheme shall now be known as CENVAT scheme.

88. Over the years, disputes between the department and assessees on the interpretation of MODVAT rules and procedures have plagued the system. I propose to put an end to this situation. With effect from 1st April 2000, the plethora of existing rules will be replaced by a small set of simple and transparent rules, which, I am sure , shall reduce disputes to a minimum.

89. I also propose to expand and rationalize the scope of the MODVAT scheme. All inputs and all capital goods are now included in the eligible list of MODVAT scheme. The only exception will be High Speed Diesel Oil and Petrol. However, I propose that the availability of MODVAT credit on capital goods will be spread over a period of two years, with effect from 1st April 2000.

90. My proposals include full extension of MODVAT scheme to cigarettes for the first time, which should cheer the industry. However, the good news for the cigarette manufacturers ends here. I propose to enhance the rates of excise duty on all categories of cigarettes by 5 %.

91. At present, MODVAT credit of CVD paid on project imports is restricted to the extent of 75%. This has been an irritant. This credit shall now be available for 100% of the CVD. I have also decided to do away with the condition of installation as a pre-requisite for taking credit on capital goods.

92. Now I shall deal with some sector specific proposals. I take up steel first.

93. Mr. Speaker, Sir, an ad-valorem structure of taxation is largely free from distortions, equitable and automatically buoyant. For the present, I propose to restore ad-valorem excise duty structure on steel produced by re-rollers and also to steel produced by induction furnaces. These goods would be subjected to CENVAT of 16%, with MODVAT benefit, from 1st April 2000. I may add that capacity based tax applicable to re-rollers and induction furnaces has created more problems than it has solved.

94. Under the existing law, excise duty on goods sold from the depots is charged on the basis of depot price and not the factory gate price. I have received representations that this has caused distortion in the marketability and distribution of steel. Deliveries of steel by integrated steel plants, whether from the plant or stockyard, will henceforth be assessed to duty at the factory gate price.

95. Sir, now I turn to the textile industry.

96. I had introduced a compounded levy scheme for independent textile processors in December 1998. This has not worked as well as expected and has led to leakages and revenue losses; still, I do not wish to disturb the scheme abruptly. However, to rectify the situation, I propose to raise the rates of compounded levy from the existing Rs.1.5 lakhs per chamber per month to Rs.2 lakhs per chamber per month and from Rs.2 lakhs per chamber per month to Rs.2.5 lakhs per chamber per month. My proposals also include some modifications in the scheme in order to plug the loopholes.

97. Units engaged in the texturising of duty paid polyester yarn would henceforth pay specific rate of excise duty. This should reduce the valution disputes in respect of these units.

98. Small scale units enjoy duty free exemption on clearances up to Rs.50 lakhs a year. I am unable to raise this limit. However, with effect from 1st April 2000, I propose to rationalize the special schemes prevalent for cosmetics and toilet preparations, air-conditioning and refrigerating machinery and their parts, tread rubber and articles of plastics to fall in line with the general scheme of exemption for small scale units.

99. Sir, I now come to the next part of my proposals which relate to streamlining and simplification of the system. These are aimed at unshackling the excise procedures from the slavery of complexities and rigidities, and making them simple and user-friendly. I may add that like my rate-related proposals, these also go much beyond minor adjustments and mark a fundamental and even a dramatic departure from the current practices.

100. With effect from 1st July 2000, all statutory records in excise would be dispensed with. Excise department would rely upon the manufacturer’s records. This completes the process initiated by me in my last budget in this regard.

101. From 1st April 2000, excise assessees would be allowed to pay the excise dues in fortnightly instalments. With this proposal I am putting an end to the age-old practice of day-to-day payment system of excise duties. For the small scale sector, the monthly payment scheme, that I had introduced last year, would continue.

102. Next, I want to make the valuation mechanism simple, user-friendly and along commercially acceptable lines. From 1st July, 2000, I propose to replace the existing section 4 of Central Excise Act which is based on the concept of "normal price" by a new section based on "transaction value" for assessment. This is a path breaking departure from the traditional approach.

103. The House is aware that several items are assessed to excise duty on the basis of Maximum Retail Price. This system is largely free from disputes and has been generally welcomed by the industry. I propose to extend MRP based assessment to about two dozen new items. I also propose to extend this scheme to more items during the course of the year.

104. I also propose to rationalize the rates of duties applicable to medicines and toilet preparations under the Medicinal and Toilet Preparations (Excise Duties) Act. The MRP-based assessment provisions are also being extended for assessment under this Act. These measures would considerably simplify the collection of excise duty by the States and improve their revenues from these duties. These changes will come into force from a notified date.

105. In addition to the above I am rationalizing the provisions relating to payment of interest and penalty on default. The details are contained in the Finance Bill.

106. This completes my package of restructuring and rationalisation on the excise side. Trade and Industry should now breathe easy.

107. I shall now deal with my proposals relating to customs duties.

108. I am conscious that in this area, I face serious constraints. We have to maintain a judicious balance between the need for providing adequate protection and growth impulses to the domestic industry and calibrating tariffs to international levels. We also need to carry the reform and rationalization process further.

109. Taking all factors into consideration, I propose to reduce the peak rate of basic customs duty from 40% to 35%, thereby reducing the total number of customs duty rates from 5 to 4, i.e. 35%, 25%, 15% and 5%.

110. The surcharge of 10%, which I am constrained to continue on revenue considerations, will also apply to the new peak rate of 35%. Crude oil and petroleum products, certain WTO bound items and gold and silver would continue to be exempt.

111. The House may recall that I had imposed a special additional duty (SAD) of customs in my budget proposals for 1998-99. This had made manufacturer-importers quite sad. But traders were glad because they were exempted. I am correcting the discrimination by withdrawing this exemption. Now all importers would pay this duty. SAD would, however, not apply to petroleum products.

112. Consequent to our international trade treaty obligations, several hundred items will be placed on the free list for imports effective 1.4.2000. Most of these are consumer goods and a number of them are agricultural products. To accord adequate tariff protection for these items, they are being placed at the peak rate (35% plus surcharge), except for a few items like capital goods. A number of agricultural and horticultural products placed on the free list of import in earlier years are also being brought to the peak rate to ensure adequate protection to our farmers.

113. Furthermore, for a handful of sensitive agricultural products (wheat, rice, sugar and edible oils), in which our experience with supply management has underlined the importance of occasional tariff adjustments, I am making suitable enabling provisions to fix the statutory tariff rates at appropriately high levels. This will give the necessary flexibility for adjusting the applied rates.

114. Customs is not all about raising revenues. It is also a powerful tool for building our industrial capabilities and improving our international competitiveness. I propose to take several measures in this regard, picking up three sectors for special attention. These are integral parts of the "convergence revolution" which is fast becoming a reality.

115. First, and foremost, the Information Technology (IT) sector, which leads the current excitement. I propose to reduce the customs duty on several items for the IT sector. These include:

• Computers, from 20% to 15%;
• Mother boards, from 20% to 15%;
• Floppy diskettes, from 20% to 15%;
• Specified capital goods for manufacture of semi conductors and ICs, from 15% to 5%.
• Microprocessor for computers, from 5% to Nil;
• Memory storage devices, from 5% to Nil;
• CD ROMs, from 5% to Nil;
• Integrated circuits and microassemblies from 5% to Nil; and
• Data graphic display tubes for colour monitors for computers from 5% to Nil.

116. Telecommunications is equally important. To become an economic superpower we must get connected, domestically and globally. I, therefore, propose to reduce the basic customs duty on specified raw materials for manufacture of optical fibres from 15% to 5%. I also propose to reduce the duty on cellular phones from 25% to 5% to improve their availability through proper channels and to curb the menace of the grey market, and on their battery packs from 40% to 15%. I am extending the concessional rate of 5% basic duty applicable to specified telecom equipment to internet service providers also.

117. The third is the entertainment industry, which is also an area of great promise. To reduce the cost of cinematography for the film industry and provide access to the latest technology, I propose to reduce duty on cinematographic cameras, and other related equipment from 40% to 25%. I also propose to reduce the basic customs duty on colour positive films in jumbo rolls and colour negative films in rolls of certain sizes from 15% to 5%. They shall also be exempt from CVD.

118. I would like to cover one more sector in this context.

119. India can be a world leader in jewellery exports, as it is for gems. I propose to reduce the basic customs duty on platinum and non-industrial diamonds from 40% to 15% in order to encourage production of quality jewellery and to provide a fillip to jewellery exports.

120. To give effect to our agreements with the European Union and the United States, I propose to adjust the customs duties on fibres, yarns, textile fabrics and garments. As a result, several varieties of fabrics and garments would henceforth be subjected to the higher of ad-valorem or specific rates of duties prescribed for them.

121. As far as petroleum sector is concerned, the international prices of crude oil and petroleum products prevalent over some time now have been putting considerable strain on our refineries and distorting the oil pool account. This is accentuated by the fact that prices of petroleum products have not been fully decontrolled so far. I, therefore, propose to reduce the basic customs duty on crude oil from 20% to 15% and on petroleum products from 30% to 25%, except on kerosene for parallel marketing, the basic duty on which is being raised to 35%, from 30%.

122. In several cases the bound rates are to be reduced as part of our international commitment. I do not wish to take the time of the House by going into details. But they do have some revenue implications.

123. Mr. Speaker Sir, last year, I had proposed the abolition of Finance Minister’s discretionery power to grant ad hoc exemptions of customs and excise duties except for goods of strategic nature, or for charitable purposes. I am pleased to inform the House that this self-denying rule has helped the Government save about Rs.500 crore this year.

124. I shall now mention a few small, but significant, measures for procedural improvements and redressal of the problems of taxpayers. To curtail the so called "show cause notice Raj " in customs and central excise, I have decided that henceforth, show cause notices involving duty amount of more than Rs.1 crore would be issued only with the approval of the Chief Commissioner of Customs and Central Excise. Other show cause notices would require approval of the Commissioner of Customs and Central Excise.

125. It cannot be disputed that the tax due from a defaulter should flow to the exchequer at the earliest in public interest. At present, penalty equal to 100% of the duty evaded is payable, and this is mandatory, even if someone makes the payment immediately after the adjudication order is passed. With a view to encouraging payment of tax due, I have now proposed that if the amount of tax evaded is paid along with interest within 30 days of the communication of the order, a penalty equal to only 25% of the duty evaded would be payable. I hope this carrot will be found preferable to the stick, which is bound to follow if tax is not paid in time.

126. Service tax is emerging as an area of promise as well as problems. Many experts advise me that the best way to deal with this tax is to make it applicable to all services in one go. However, some others have suggested basic changes in the very structure of the service tax. I have decided not to make any changes for the present. I am setting up an Expert Group to go into all aspects of the matter, review the experience so far, and give me its considered advice.

127. My proposals on the excise side are estimated to result in revenue gain of Rs.3,252 crore in a year. On the customs side, my proposals are estimated to result in a revenue loss of Rs.1,428 crore.

128. Copies of the notifications issued to give effect to the changes in excise and customs duties shall be laid on the Table of the House in due course.

Direct tax proposals

129. I now turn to my Direct Tax proposals.

130. Mr. Speaker, Sir, my edifice of Direct Tax proposals rests on four pillars of stability, economic growth, rationalisation and simplification.

131. Our existing rates of personal taxation at 10%, 20% and 30% are only three in number and quite moderate. Although the basic exemption limit is Rs.50,000, the real exemption limit goes much higher when the other exemptions and deductions are taken into account. For example, salaried persons start paying tax only on crossing Rs.75,000 per year because of the standard deduction. If the tax rebates and deductions available for savings are taken into account, the effective limit of exemption gets close to Rs.1 lakh. Thus I feel that the present rates of taxation as well as the exemption limit are reasonable. I, therefore, propose to maintain them at the same levels.

132. Although the 10% surcharge imposed last year was meant to be temporary, I am constrained to continue with it, in view of the heavy and unexpected expenditure burden, mainly on account of defence requirements and transfer to states mandated by the Finance Commission.

133. Having restrained myself from imposing any additional taxes during the course of the year when there was much talk of a Kargil tax, I now propose increasing the surcharge moderately from 10% to 15% on non-corporate tax payers having total taxable income above Rs.1,50,000 per year. This will slightly increase their marginal rate from 33% to 34.5%. I trust that these relatively better-off sections of society would bear this additional burden cheerfully.

134. Lest it is felt that I am being discriminatory in not increasing the surcharge on corporates, let me clarify that they would also get their opportunity to contribute to the national effort in other ways a little later.

135. Despite the financial constraints, I would like to propose some positive measures on personal taxation.

136. As an expression of our gratitude to the contribution made by senior citizens during their active years and taking into account the possible hardships that they face in the advanced years of their life, I propose to raise the tax rebate available to them from Rs.10,000 to Rs.15,000. At the marginal tax rate of 30%, this translates into an exemption of an additional Rs.15,000 from their gross income, or substitutes the need to save an additional Rs.25,000 to avail of a similar exemption under section 88.

137. I have always maintained that despite all challenges, my job as Finance Minister in making a budget is easier than that of an average house-wife struggling to balance the family budget. As a token of appreciation and recognition of women as productive contributors to the economy, I propose an additional rebate of Rs.5,000 for women tax-payers from their tax liability. This would be subject to the overall ceiling of Rs.15,000 if they also happen to be senior citizens.

138. With a view to acknowledging the services rendered by the members of defence forces and in token of our gratitude for their exceptional courage and valour, I had provided exemption from tax for the pension and family pension of gallantry award winners of these services. I now propose to extend similar benefits to gallantry award winners of para military forces and other forces engaged in national and civil defence.

139. I now turn to the role of taxation as a facilitator of economic growth. Knowledge-based industries are fast emerging as the front-runners of the Indian economy. To accelerate their growth, and encourage investment in them as mentioned in Part A of my speech, I propose to introduce a new regime for venture capital funds. The highlights of this would be:

• No approval of Venture Capital Funds by tax authorities would be required.
• The principle of "pass through" would be applied in tax treatment of Venture Capital Funds, whose income would be free of tax, except when not distributed within the period that may be prescribed in the guidelines of SEBI. Income in the hands of its investors, which would otherwise be taxable, would also be kept tax free, and there would only be a one-time payment of tax by the Venture Capital Fund at the rate of 20%, when the Fund distributes its income to the investors. The same rate would apply to undistributed incomes also.

140. I hope these incentives will facilitate the coming together of Saraswati (i.e. knowledge) and Laxmi (i.e. wealth) to bless entrepreneurs and investors.

141. Various tax benefits are already available for the infrastructure sector. I propose to extend these benefits to two additional and essential sectors of urban infrastructure, viz. water treatment and solid waste management. I also propose to include investments in public companies providing long term finance for urban infrastructure as approved investments for charitable trusts. This will enable more investment in projects for development of urban infrastructure.

142. To provide a more focussed incentive for infrastructure development, I propose to delete the existing provisions 54EA and 54EB and replace them with a new provision, whereby tax exemption from capital gains would be available only if investment is made in bonds to be issued by National Bank for Agriculture and Rural Development (NABARD) and the National Highways Authority of India (NHAI). These bonds will have a lock-in period of five years and their proceeds will be used for providing finance to the agricultural sector and for the National Highway Development Project (NHDP).

143. I propose to continue the thrust given to the housing sector last year and extend the benefits already available for two more years, i.e. for houses or projects which are completed by 31st March 2003. I hope this will sustain and accelerate house construction activity.

144. To supplement the package of incentives of this sector, I also propose that the 20% rebate of tax under section 88 of the Income-tax Act would now be available for repayment of housing loans up to Rs. 20,000 per year as against Rs.10,000 earlier.

145. Presently, the exemption from tax on long-term capital gains is not available if the capital gain from transfer of capital assets is invested in a house, if one house is already owned. I am removing this restriction. Even if they own one house, taxpayers can make an investment in a new house and claim exemption from capital gains tax on sale of capital assets.

146. Last year I had provided for 100% exemption on export profits to the entertainment industry. However, this benefit was limited to corporate entities only. I propose to extend the benefits available to corporates to non-corporate assessees as well with effect from Financial Year 1999-2000. This will remove the perceived discrimination to the non-corporate film makers, but I do hope that this industry will move towards corporatisation and modernization rapidly which is possible without in any way curbing individual creativity.

147. To address a long-standing demand of the entertainment industry and with a view to streamlining the procedures, I also propose to increase the limit of reporting of payments made by a film producer, during production of a film, to the tax authorities to Rs.50, 000 from the present level of Rs.25,000.

148. I hope these concessions combined with what I have already done on the indirect tax side, will reassure the entertainment industry that "Hum Saath Saath Hain".

149. Shipping provides the transportation sinews to our international trade, and has a strategic relevance also. To enable the Indian Shipping Industry, which is facing serious challenges, to generate resources for strengthening and modernising its fleet, I propose to allow deduction of their entire profits, against 50% as at present, if these are kept in a reserve to be used for purchase of new ships. This 100% deduction would be available for five years beginning from the next year.

150. Investment in human resources is an essential precursor for sustainable economic development. To enable meritorious students, especially those from not so affluent backgrounds, to avail of opportunities for higher education, I propose to increase the maximum amount of repayment of loan for higher education from Rs.25,000 to Rs.40,000 as an allowable deduction. This would translate into loan amounts exceeding Rs. 3 lakhs, which would help such students to defray the increasing cost of higher education, especially in management and professional courses.

151. Availability of vocational training can go a long way in mitigating the problem of unemployment. It can also bridge the paradoxical mismatch between wide spread unemployment on the one hand and a shortage of properly trained manpower on the other. In order to remedy the situation I propose to allow 100% deduction of payments made for the establishment and running of institutions for vocational education and training by the private sector in rural areas and small towns.

152. Barring some significant but scattered achievements, we are not a major force in the international sports arena. Like many other activities, modern sports and athletics need money and infrastructure for their development. While some sports have access to abundant funding, most others suffer for want of adequate support. To rectify this situation, I propose that 100% deduction would be available for donations made by corporate entities to the Indian Olympic Association for the development of infrastructure and for the sponsorship of games and sports. I hope that with this concession, IOC would be better equipped to promote sports in the country.

153. Last year, my proposals on corporate restructuring were widely welcomed by Indian industry. However, there have been persistent demands to clarify and rationalise some of the provisions. I, therefore, propose to remove ambiguities in this regard by making suitable changes in the provisions of the Income- tax Act. I also propose that resulting companies as a consequence of splitting of statutory bodies like SEBs will enjoy the benefits of demerger if they fulfil the conditions notified by the Central Government.

154. Last year, I had dispensed with the condition of continuity of the same business for carry forward and set off of loss. I propose to liberalise the provisions relating to carry forward and set off of unabsorbed depreciation on the same lines. The condition of continuity of same business will be dispensed with and unabsorbed depreciation may be carried forward and set-off even if the same business is not continued.

155. To give greater restructuring flexibility and freedom to the corporates, including PSUs, I propose to make the conditions for tax exemption of voluntary retirement benefits of employees more liberal and to simplify the procedure for tax exemption of benefits given to employees of Public companies and Co-operative Societies. It will not be necessary any longer to obtain the approval of the tax authorities for their voluntary retirement schemes if these are formulated in accordance with the prescribed guidelines.

156. The various exemptions currently available while calculating Minimum Alternate Tax (MAT) and the credit system has undermined the efficacy of the existing provision and has also led to legal complications. To address these issues, I propose that the Minimum Alternate Tax be now levied at the revised rate of 7.5% of the "book profits" as determined under the Companies Act instead of the existing effective rate of 10.5%. However, this will now be uniformly applied – barring one exception that I will mention later. There will also be no credit for Minimum Alternate Tax paid. This should bring all zero tax companies within the tax-net, which is also the basic purpose of this tax. The new system has the virtue of a lowered rate of tax, a simple method of computation, and an equitable spread.

157. To promote industrialization in less developed areas, I propose to extend the tax holiday available for new units set up in industrially backward States and industrially backward Districts for another two years. Similarly, I also propose to extend the existing tax benefit for new Small Scale industrial units for another two years, i.e., till 31st March, 2002.

158. To strengthen our capital market, I propose to provide 100% exemption to the income of Investor Protection Funds of Stock Exchanges to give them incentives for setting up of such funds.

159. At present, no tax is payable in the hands of shareholders on the dividend income received from a domestic company, only the company pays additional income-tax at the rate of 10% on the amount of dividends distributed by them. The large gap in the tax treatment of dividend income and interest income has been widely criticized. To reduce this anomaly, I propose to increase the rate of tax on dividends distributed by domestic companies from 10% to 20%. I would clarify that dividend income in the hands of share holders will continue to remain tax free.

160. In a similar vein, to reduce the distortions arising out of the differing tax treatment for interest incomes from mutual funds and other instruments, like bank deposits and corporate deposits, I propose to increase the rate of tax on income distributed by debt oriented Mutual Funds and UTI from 10% to 20%. However, I would like to clarify that the income distributed under the US-64 and other open-ended equity oriented schemes of UTI and Mutual Funds will continue to be exempt from this tax, as at present.

161. Currently, banks and financial institutions pay an interest tax of 2%, which adds to their cost. To remove this impediment to financial transactions, I propose to abolish this tax. This is a significant measure which will benefit the financial sector, and consequently the depositors and users of the products and services of the banks and financial institutions.

162. The life insurance sector is now opened up and would no longer remain a public sector monopoly. It is currently taxed at a special rate which is likely to need a revision in the altered scenario. I would like to undertake such revision on the basis of expert advice and in the light of international practice. I propose to constitute an Expert Committee for this purpose and I hope to bring necessary amendments based on its recommendations during the course of the year.

163. One of the major initiatives towards better tax compliance has been the introduction of the one-by-six scheme. This, along with other measures, has contributed substantially to increasing the number of tax-payers, which had languished at the level of just over a crore till 1996-1997, but has now crossed the two crore mark, with the biggest boost coming over the last two years. The momentum generated by this and other measures to widen the tax base needs to be sustained. I, therefore, propose to extend the one-by-six scheme from the existing 54 cities to an additional 79 cities in the country. With this, all the cities having a population of two lakh and more on the basis of the 1991 Census would stand covered.

164. In keeping with international practice, it is proposed to promote a common Business Identification Number to be used by different agencies and departments. In our context, the Permanent Account Number of income-tax would be that instrument. To begin with, the CBEC and DGFT will use PAN for their assessees, importers and exporters. I hope that in near future, the PAN card will replace the ration card as the primary identification document for a sizeable number of people.

165. With a view to intensifying the drive for PAN allotment, I propose to open special counters in all cities where the one-by-six scheme will be in operation (including 79 cities where the scheme is being extended) to issue PAN cards to the taxpayers within 30 days of their filing the application. This facility will become operational with effect from the 1st of July, 2000.

166. A large number of farmhouses have come up in the vicinity of metropolitan and big cities. Many of these generate commercial income from being hired out for residential accommodation and for holding functions and events. No tax is paid on this income, which is mis-declared as agricultural. This blatant and visible misuse of an exemption originally intended only for genuine farmers cannot be condoned or allowed to continue. I, therefore, propose to make suitable changes in the law to ensure that the income from farmhouse from anything other than genuine agricultural operations will be brought in the tax net.

167. It is my earnest desire to make the system of tax collection as user friendly and efficient as possible. The tax payer should be able to pay taxes with speed, convenience and dignity. With this in view, I propose to expand and revamp the presently available facilities of tax collection to provide that taxpayers would be able to pay their tax in any branch of nationalised banks where they maintain an account. This facility would be available in all towns and cities covered under the one-by-six scheme with effect from 1st August, 2000. For operational reasons, this facility would initially be offered in computerised branches only, but would be expanded continuously.

168. I also propose to further streamline the system of refunds. While the present practice of sending the refund cheques to the tax payers under advice to their banks would continue, the Tax Department would also offer the facility of issuing refunds directly on the bank accounts of assessees if the tax payers so desire. For operational reasons, this facility would also initially be started from computerised branches of banks, with continuous expansion as the banks get progressively computerised.

169. With almost every sector of the economy expecting a special treatment, our Income-tax Act has become a vast compilation of exemptions. Income is income and should be taxed. There should be no permanent exemptions. With this in view, I want to make a beginning towards rationalising the existing system of concessions and exemptions. Export earnings of various kinds presently enjoy exemptions from income-tax ranging from 50% to 100% of income. I have, therefore, decided to phase out these concessions over a period of five years. To begin with, I am withdrawing these concessions by 20% from the financial year 2000-2001, and by 20% each subsequent year till they reach a zero level. I would add that exporters would continue to enjoy exemption from MAT till the full phase out. The revenues garnered from this rationalization measure will help to finance universalization of primary education and other investments in human resources.

170. My rationalisation measures also include the following:

• Trusts running educational institutions and hospitals will not be denied exemption even if their trustees avail medical and educational facilities from them. Such benefit alone will be taxed.
• Investments made in public sector companies will continue to be eligible investments for trusts, for a certain period after the disinvestment by the Government even after these companies stop being public sector companies.
• Interest for delayed payment of dividend tax and tax on distributed profits by mutual funds and UTI will be reduced from 2% per month to 1.5% per month.
• Exemption of allowances received by employees will be raised in conformity with the recommendations of the Fifth Pay Commission.
• Limit of gross receipts for compulsory maintenance of books by professionals will be enhanced from Rs.60,000 to Rs.1,50,000.
• Advisory limit for disposal of departmental appeals by Appellate Tribunal will be provided for in law.

171. To sum up, Mr. Speaker, Sir, as a result of various proposals made in this budget on the direct taxes, the estimated revenue in 2000-2001 would be Rs.72,105 crore, including the component of additional resource mobilisation of Rs.5,080 crore.

172. Mr. Speaker, Sir, with these proposals I estimate total tax revenue receipts for the Centre at Rs.1,46,209 crore and the fiscal deficit at Rs.1,11,275 crore or 5.1% of GDP. I could have sought a deeper cut in the fiscal deficit, but a substantially higher level of revenue mobilization would have hurt the industrial recovery under way at present. Thus, in the short-run, I had to carefully balance the need for fiscal consolidation with the need to nurture the recovery phase of a growth cycle. I hope this august House will support the balance I have struck in this budget.

173. Growth is not just an end in itself. It is the critical vehicle for increasing employment and raising the living standards of our people, especially of the poorest. Sustained, broad-based growth, combined with all our programmes for accelerating rural development, building roads, promoting housing, boosting knowledge-based industries and enhancing the quality of human resources, will impart a strong impetus to employment expansion. There can be no better cure for the problem of poverty than this in our country.

174. Sir, the millenium has heralded the arrival of the Indian economy on the global stage. In two short years, we have shown that Indian talent and Indian effort is second to none. In two short years we have ensured that "made in India" is a compliment for any product or service. In two short years we have sent notice to the world that India will be an economic superpower in the 21st century. The world’s eyes are now upon us, and we will deliver.

175. Mr. Speaker, Sir, with these words, I commend the budget to this august House.