“I am maintaining the credibility of the process by giving lower tax rates…,” Finance Minister Arun Jaitley says, countering criticism that his Budget does not lay out any roadmap for corporate tax reduction, a promise which he had made.
In a free-wheeling conversation with a select set of journalists, Jaitley explained how he proposes to get an additional ₹20,000 crore through his indirect tax proposals, and the come-clean option for tax defaulters. Excerpts:
Contrary to expectations, the Budget has not announced any corporate tax rate cut…
I am maintaining the credibility of the process (corporate tax reduction) by giving lower tax rates to two categories of manufacturers and allowing the sunset clauses to exhaust. The exemption benefit will come only in 2017. For new units I have provided for lower rates at 25 per cent and companies with turnover of below ₹5 crore — basically the small and medium enterprises — a rate of 29 per cent. Next year, I will add more categories.
How will you raise ₹20,000 crore from indirect tax?
There are five-six aspects on taxation. First, is the small taxpayer with income less than ₹5 lakh, who gets two types of relief, a higher deduction of ₹3,000 and increasing the rent deduction to ₹60,000.
A lot of people talk of strengthening the purchasing power of this category in terms of exemption limits. Exemption limits are across the board — the 30 per cent tax-payer also gets the benefit. Here, we are trying to give advantage to the small taxpayer that the wealthy won’t get. This we are doing while keeping him in the tax net. Similarly, the switch to the presumptive taxation prevents harassment by tax authorities.
On indirect tax, I have altered the excise and customs to protect Make in India. I have made three categories pay higher tax — products that are sensitive for health, for environment, and the super rich. Three per cent means a 0.6 per cent difference on their tax… The largest component of this is coal cess from which about ₹ 6,000 crore will come in, the rest is small. Service tax also has to eventually converge to GST for which we have to raise it to 16 per cent.
Is the income-disclosure scheme an amnesty?
This is not… and it is different from the Voluntary Disclosure of Income Scheme of 1997 where only 30 per cent tax had to be paid and there was no penalty. Also, people could declare 10-year-old valuations and so it discriminated against the honest tax payer. It is income which has escaped assessment. It will require one to pay 30 per cent plus 15 per cent of penalty and surcharge. So, it is virtually 45 per cent penalty. It is no longer an amnesty. Second, it will be on current value. So both flaws of the 1997 declaration have been plugged.
Also, I have given an option to settle the first appeal in both direct and indirect taxes by paying the principal and interest without penalty. But, I have not factored all these four schemes for my tax collection. Whatever comes will ease fiscal deficit target.
With the ₹1.5-lakh ceiling on employers’ contributions to the Employees’ Provident Fund, haven’t you increased the tax liability on the middle class?
The government has to spend more but the fiscal deficit target has to be met. In a ₹ 20 lakh crore Budget, ₹ 20,000 crore additional has been raised by taxing health, environment and the super rich. EPF, the provisions will start from April 1, 2016. People who save ₹ 1.5 lakh annually are in the 30 per cent tax bracket. That is also the point that was made in the Economic Survey on how much subsidy we give to this class.
How much have you provisioned for the implementation of the Seventh Pay Commission report...
I can’t quantify it. But we have factored it in terms of percentage of what employees are currently getting in salaries and pensions. The final recommendation based from the committee of secretaries still has to go the Cabinet. OROP has already been notified.