The Lok Sabha on Thursday passed the Finance Bill for the current fiscal after Finance Minister P Chidambaram's reply to the debate on the union budget during which he brought some amendments in the tax proposals, but said exemptions would be phased out eventually.
Chidambaram also said that proposed recast of tax brackets may be linked to inflation and sought to increase the tax-to-gross domestic product ratio to 11.8 per cent for the current fiscal, from 11.5 per cent in the previous year.
"I am happy to report that in 2006-07, for the first time in recent years, the actual tax collection exceeded both budget estimates and revised estimates," the finance minister said.
"We have been able to do this by expanding tax payers' base, more efficient tax administration and motivating the tax payers to comply with tax laws. Besides, we have kept tax rates stable and moderate."
The Finance Bill, together with the amendments, was passed by a voice vote. It seeks to give legal effect to tax proposals contained in the national budget that was introduced by the finance minister on Feb 28.
The amendments were largely welcomed by India Inc. "The assurance that the tax code will be ready before the year-end is welcome as it will revamp the regime," said the Federation of Indian Chambers of Commerce and Industry (FICCI).
Among the amendments, Chidambaram said an ad valorem duty of 12 per cent will be imposed on cement sold above Rs 190 per bag even as he expressed disappointment that manufacturers had not taken his advice of reducing prices seriously.
He said the reduction of excise on cement from specific duty of Rs 900 per tonne to 12 per cent would result in savings of Rs 7 per 50-kilogram bag. "It is my expectation that the cement industry will respond positively to the changes announced now and reduce the price of cement."
He, however, rejected the demand of the Left parties to hike securities transaction tax rate, even as he retained the service tax on rented commercial realty. But he said the double-taxation avoidance treaty with Mauritius would be revised with mutual consent.
"This is not only a legacy issue, it is a delicate issue and has political and diplomatic implication. With the assistance of the ministry of external affairs, we are addressing the issue. We think that we can find a reasonable solution."
On the issue of tax on employee stock option scheme, the finance minister said it was something that was being practised across the globe even as he assured some relief on the treatment of such sops.
"What we have done is no different, except that we have levied the tax on the employer who may, by agreement with the employee or by making a provision in the scheme, recover the tax from the employee. Hence, the tax will stay."
The finance minister said he was conceding to some demands of the industry to reduce customs duty on refrigerated trucks even as he scrapped the tariff on cut and polished diamonds.
Members of the main opposition, the Bharatiya Janata Party (BJP), however walked out minutes before Speaker Somnath Chatterjee took up the voting on the bill, saying some of their pro-poor amendments were ignored.
The Rajya Sabha, the upper house of Parliament, is expected to pass the bill on Saturday, ending the process of giving legislative sanction to the budget.
The date for passage of the bill was advanced to enable the finance minister to attend the annual meetings of the World Bank and the International Monetary Fund (IFC) in Washington, for which he leaves on May 6 and returns on May 11.
During the debat, Chidambaram also assured the house that all effort was being made by the government and the Reserve Bank of India (RBI) to bring down prices and rein in inflationary expectations.
He said five reasons were responsible for the price rise including high economic growth, supply-demand mismatch in commodities such as sugar, wheat and pulses, hikes in support prices for rice and expansion of money supply.
"I am confident the current inflation which has been around 6 per cent since January 2007 will be moderated due to a combination of supply side, monetary and fiscal measures taken by the government and the RBI," he said.