Mr Chidambaram said excise duty reductions in certain identified sectors were justified to boost demand and facilitate capacity addition.
New Delhi, March 21
Parliament has approved the Union Budget 2006-07 with the Rajya Sabha returning the Finance Bill 2006 after the Finance Minister, Mr P. Chidambaram, assured the Upper House that the Bill was a balanced one that sought to facilitate an average 20 per cent growth in central gross tax revenues and had a general bias in favour of domestic manufacturing.
The Lok Sabha had on Tuesday passed the Finance Bill 2006 after the Finance Minister, Mr Chidambaram, introduced few amendments on both direct and indirect taxes.
The early passage of the Budget this year is unprecedented as parliamentary approval was secured in March itself. In the normal course, the Budget is passed in May. The early passage of the Union Budget was prompted by Assembly elections in April and early May.
Replying to the discussions in the Rajya Sabha on the provisions of the Finance Bill 2006, Mr Chidambaram defended his decision to remove certain tax exemptions such as Section 10(23G) and to bring certain categories of cooperative banks under the income-tax net. He said excise duty reductions in certain identified sectors were justified to boost demand and facilitate capacity addition.
Small car hub
The Finance Minister also expressed confidence over the country becoming the largest manufacturer of small cars in the world in the next few years.
Stating that the gross tax revenues of the Centre had grown by an average 20 per cent a year in 2004-05 and 2005-06, Mr Chidambaram said bulk of this was from better tax administration and only a small proportion was through additional taxes. He hoped this performance (20 per cent increase) would be repeated even in 2006-07.
Mr Chidambaram also defended the move to hike the minimum alternate tax rate to 10 per cent and held that this rate was justified on the principle of equity.
The Finance Minister, however, indicated that over a period of time the various income-tax exemptions would have to go. Mr Chidambaram also said the Finance Ministry was working towards simplifying the SARAL income-tax return.
On the issue of central sales tax (CST) and value added tax (VAT), the Finance Minister admitted that there was no case for CST and VAT to co-exist. Indications are that the issue of compensation to States for CST phase-out/elimination would come up for discussion during the VAT Panel's meeting with the Finance Minister here on Wednesday.
As regards service tax on lawyers and doctors, Mr Chidambaram said, "Some day or the other, lawyers and even doctors would have to pay service tax. Ultimately, we have to bring all services under the service tax, barring a negative list of essential services."
Stating that the Union Budget had a bias in favour of domestic manufacturing, the Finance Minister said the move to impose 4 per cent countervailing duty on all imports would protect domestic manufacturers against large-scale imports.