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Friday, Jul 09, 2004

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Slip into khadi and morph into a geek

S. Murlidharan

Casting the tax net wider

AS always, Budget 2004 too would keep the chattering class engrossed for a few months. Excise duty on computers is proposed to be completely eliminated. This should further accelerate the steady decline in computer prices. As it is, the excise duty on computers manufactured in India is 8 per cent.

With computers becoming affordable, the tribe of Internet users will swell. The ISP providers cannot be unhappy with this development. The ripple effect won't be confined to ISP providers alone. Computer education centres too, for example, would witness a boom in their business.

It is proposed to free the handloom and powerloom sectors from the burden of central excise. Coupled with this is an excise exemption for footwear whose selling price is below Rs 250 per pair. The simple-living-high-thinking school couldn't have asked for more.

The across-the-board increase in service tax rate from eight to ten per cent is going to make a dent in the pockets of consumers, given the fact that the service tax net has been cast wide truly. That the Cenvat set-off will be allowed irrespective of one having paid excise on inputs by way of goods or service tax on inputs by way of services is not of much consequence to the man on the street.

On the contrary, the signals are ominous for him — in the years to come there would be a true and total integration of goods and services for excise purposes. The Finance Minister's contention is of course unexceptionable — services which account for more than 51 per cent of the GDP should also contribute to the exchequer as much as the manufacturing sector does.

The lowering of import duty on steel from 15 per cent to 10 per cent with a concomitant increase of excise duty from 8 per cent to 12 per cent has angered the domestic steel manufacturers who were clamouring for protection. The common man, of course, would benefit from the move as domestic manufacturers have to pull up their socks and initiate cost-cutting measures to stay competitive.

Senior citizens should not be driven to flitting from one investment scheme to another. But that is precisely what they would be pushed into doing, willy-nilly. Mr P. Chidambaram proposes to abolish the `Varishta Bima Yojana' introduced with fanfare by his predecessor Mr Jaswant Singh last year and replace it with a deposit scheme that promises the same rate of return — 9 per cent per annum. Did someone say needless tinkering?

One thought the education cess of 2 per cent would be only on direct taxes. But the proposal to impose it on taxes of all hues, including excise and service tax, would make things expensive for the consumers given the regressive nature of indirect taxation. The additional burden would most certainly be passed on to the consumers, especially in a market which is not fiercely competitive.

And those who read that the income-tax exemption limit has been increased to Rs 1 lakh from the present Rs 50,000 should hold back their celebrations. There is a caveat. Only those whose taxable income is Rs 1 lakh or less have been spared from the income-tax burden. For those having taxable income in excess of Rs 1 lakh, the exemption limit is the same as hitherto — Rs 50,000. Unions are going to pressure the employers to structure the salary of middle-level employees in such a way that the salary after standard deduction is pushed below Rs 1 lakh. And for once the employers may be seen playing ball.

(The writer is a Delhi-based chartered accountant.)

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