The Hindu : The passage of the Finance Bill 2003

Online edition of India's National Newspaper
Friday, May 02, 2003

Opinion

Opinion - Editorials

The passage of the Finance Bill 2003

THE PASSAGE OF the Finance Bill 2003 has been marked by some duty sops and concessions. Their implications on revenue have not been clarified but it is safe to assume that even when viewed in the aggregate, they are of less consequence than the withdrawal of the price increase in fertilizer that was announced earlier. Apart from having a direct impact on public finance, the rationalisation of fertilizer prices was an attempt at tackling the burgeoning problem of subsidies, a key issue in fiscal reform and consolidation. None of the concessions and duty reductions announced on Wednesday has a bearing on such broader issues, although the special treatment meted out to textiles smacks of ad hocism and probably distorts the moves towards a uniform tax structure devoid of any marked sector specific bias. On direct taxes, the Finance Minister has clarified certain budget proposals on the applicability of long-term capital gains on equity shares and on income earned from insurance policies taken before April 1 this year. Banks setting up offshore banking units (OBUs) in notified special export zones get tax exemption on a tapering scale in the first three years. Political parties are exempt from income tax on capital gains. The benefits available to the tea industry are now extended to the rubber industry as well. A reduction in the excise duty on refined oils and vanaspati and a lowering of the customs duty on specified capital equipment for the IT industry are among the modifications to the indirect tax proposals of the budget.

Neither the implications of the latest sops nor for that matter the level of debate over this year's budget have contributed anything substantial to the ongoing concerns of public finance. There are basically three critical but interconnected issues that the just concluded budget process has disappointingly failed to bring forward. The first is tax reform as outlined by the Kelkar committees, the reports of which completely dominated the pre-budget season. Even from the Finance Minister's budget speech it was clear that the Kelkar proposals have not found acceptance and as if that was in doubt it has now been clarified that they are no moves whatsoever to tax agricultural income. The latter has formed part of all tax reform agenda including that of Kelkar. The introduction of the Value Added Tax (VAT) regime at the States has been another related issue. The Union budget seemed to give the final push to this vital, long-discussed State-level reform of indirect taxes. A formula to compensate the States for a possible revenue loss in the post-VAT period was reiterated in the budget speech. The Central Sales Tax was to be phased out and the States were given additional leeway in mobilising tax resources. With these and a few other matching preparatory announcements by the States, the VAT looked like being implemented, at least partially from April 1, but had to be postponed until June 1. Even that date looks unlikely to be met. The lack of preparedness at the Centre and the States and the inability to convince the key tax-paying community have been the main hurdles and they are unlikely to be crossed with just one month to go. As the Finance Minister has said, a major reform such as the VAT cannot be implemented in a patchwork fashion.

From the short-shrift given to the Kelkar recommendations and looking at the agonising delay over VAT, it is clear that even the most articulated issues of public finance and policy can lose out in an election year, when populism rather than economic rationale will be the decisive factor. Also disappointing is the fact that the budget discussions did not throw much light on another core concern, the alleged under funding of the budget. For instance, there has been no clue as to where the funds will come from for the ambitious Rs.60, 000-crore infrastructure investment under a public-private partnership. The budgetary process would have received a boost if it had thrown some light on the pressing public finance issues of the day.

Printer friendly page
Send this article to Friends by E-Mail

Opinion

Stories in this Section

The passage of the Finance Bill 2003

Lawless lathi

Affirmative action — II

The Uphaar case

India's opportunity in Iraq

Why Modi drew a blank

`Oil was the reason for the war'

Lethal injection better

Change curriculum