Chidambaram promises 'relook' at transaction tax

The Finance Minister promised to review the 0.15% transaction tax and sought industry's support to liberalise FDI regime. Read in Hindi

Finance Minister P Chidambaram on Monday promised to have a "relook" at the transaction tax rate of 0.15 per cent and sought industry's support to liberalise FDI regime, which has been opposed by Left parties.

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"We must admit that transaction tax is efficient, neat, non-regressionary, eliminates tax avoidance and everybody contributes to the Exchequer... But I am prepared to relook at the numbers," he told a FICCI post-budget meeting.

"We made a judgment that the complex capital gains tax regime was distorting the market and encouraging tax avoidance. The transaction tax would be beneficial in the long run," he said, a day ahead of his meeting with brokers, who were opposed to the new tax, particularly on bonds, which have low margins.

After consultation with brokers, some of whom were even in favour of it, Chidambaram said he had fixed three rates -- zero per cent for long-term capital gains tax, 10 per cent for short-term capital gains tax and 0.15 per cent transaction tax on purchase of listed securities.

"The numbers could be zero, 10 and 0.15 or zero, 15 and 0.10 per cent," he said, adding he would seek support from everybody for the long term benefit of the capital market.

Without referring to Left parties' opposition to hike FDI limit in telecom, civil aviation and insurance, he said the Budget has tried to send clear signals to the world that India was on the path of reforms by raising the FDI limits.

"I appeal to industry to support the measures. Please explain it in purely financial, business, accounting and company law terms and not in ideological terms," he said.

On telecom, Chidambaram said the Government is trying to make the FDI regime more transparent by allowing 74 per cent foreign investment.

At present, FDI is allowed upto 49 per cent in telecom but the holding company of the promoter can take another 25 per cent, which takes the foreign holding to 74 per cent in a "non-transparent manner", he said.

"What is so far allowed in a non-transparent manner is now being proposed to be allowed in a transparent maner," he added.

Going into the genesis of FDI, he said four numbers matter -- zero, 26, 51 and 74 per cent. These bring about a significant change in the policy regime.

In the case of civil aviation and insurance, he said what has been done is to raise FDI limit from 40 to 49 per cent and from 26 to 49 per cent respectively, which do not alter the ownership pattern and the companies will still remain in Indian hands.

Since, FDI in airports has been pegged at 49 per cent, the Finance Minister said there was no reason to have a different limit for civil aviation.

In insurance, Chidambaram said the Budget announced a hike in FDI limit following demands from private insurers, who wanted to infuse more capital.

He made it clear the FDI regime did not in any way affect PSUs like LIC and GIC, as foreign investment is allowed only in private insurers.

The Government is likely to attempt a comprehensive tax reform in the Union Budget for the next financial year, Chidambaram said.

"I promise you that Government will maintain stable and moderate rates. But for a comprehensive tax reform, wait for the next Budget," he said.