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Chidambaram open for transaction tax review

Our Bureau

New Delhi , July 12

THE Finance Minister, Mr P. Chidambaram, today vociferously defended the Budget proposal to levy a 0.15 per cent tax on all securities transacted on stock exchanges, while maintaining that a review, if at all, would be only on the extent of tax being levied.

In his interactions with the Federation of Indian Chambers of Commerce and Industry (FICCI) as well as the Confederation of Indian Industry (CII), Mr Chidambaram delivered an unambiguous message: The transaction tax is "efficient, neat, non-regressive and eliminates tax avoidance". At the most, he was prepared to "revisit the numbers in order to fine-tune the tax".

The Finance Minister noted that going by the Budget proposals, there would now be three rates on securities traded in stock exchanges - a nil rate on long-term capital gains; a 10 per cent tax on short-term capital gains, and the 0.15 per cent transaction tax. "I don't think anybody wants long-term capital gains tax to go back to 20 per cent or the short-term rate to go up again from 10 per cent to 20 per cent. So, the quarrel is over just the 0.15 per cent transaction tax. If someone can give me better numbers, I am open for a re-look. These could be the proposed zero per cent, 10 per cent and 0.15 per cent or zero per cent, 15 per cent and 0.10 per cent," he said.

Mr Chidambaram urged India Inc to support the transaction tax, "even while I recognise your right to give me a different set of numbers". According to him, the transaction tax would prove beneficial in the long run, as it is an accepted fact that the existing `complex' capital gains tax regime was distorting the market and encouraging tax avoidance.

After making his position clear with regard to an issue concerning the markets, the Finance Minister went on to defend a proposal that has angered the Left - the move to hike foreign direct investment (FDI) limits in aviation, telecom and insurance. Here too, he pointed out that the numbers that really matter in FDI are zero per cent, 26 per cent, 51 per cent and 74 per cent, for it is only these that bring about significant changes in the overall policy regime. In both civil aviation and insurance, the Budget has proposed raising the FDI limit to 49 per cent (from the existing 40 per cent and 26 per cent, respectively).

Allowing 49 per cent FDI will not alter the ownership pattern and the concerned companies will remain in Indian hands, he said. Moreover, the higher FDI is being allowed in private insurance companies and will not in any way impact the public sector insurers such as Life Insurance Corporation (LIC) and General Insurance Corporation (GIC). Also, since FDI in airports is now pegged at 49 per cent, there is no reason to have a different limit for aviation.

As for telecom, the move to hike the FDI limit from 49 per cent to 74 per cent would merely make the existing non-transparent regime more transparent. Mr Chidambaram pointed out that while at present, only up to 49 per cent FDI is permitted in telecom, the holding company of the promoter can still take another 25 per cent, which takes the foreign holding to 74 per cent in a ``non-transparent manner'', he said.

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