Budget may usher in long-term gains for cos

NEW DELHI: Groundwork for the ’03-04 budget is all set to begin in full earnest with the twin taskforces headed by Vijay Kelkar slated to submit their final recommendations to finance minister Jaswant Singh in the next couple of days.
The taskforce on indirect taxes is scheduled to submit its proposals on Thursday, followed by the direct taxes panel on Friday.
Having seen through a number of legislative amendments during the winter session of Parliament, apart from the mid-term review as well as the rescue packages for UTI, IDBI and IFCI, the finance ministry is slated to move full speed on the budget-making process now.
With assembly elections in eight states in ’03 and after repeated statements on speeding up reforms, budget-making will be a tightrope walk for the NDA government. Therefore, Mr Kelkar’s reports are expected to face a lot of criticism from the BJP and its allies, apart from the Congress and the Left. However, the industry is looking forward to the final recommendations. It expects a number of long-term benefits due to procedural simplification.
Despite the hammering suffered by the discussion papers on both direct and indirect taxes, the taskforces have held on to the fast-forward reforms theme, highly-placed sources said.
Since there is unanimity on the need to boost the markets, the taskforce on direct taxes is likely to stick to its recommendation on removal of long-term capital gains tax on equity and of tax on dividends.
The same is the case with the proposal to align book profits with taxable profits and the scrapping of minimum alternate tax (MAT). This is conditional on the rate of corporate income tax being reduced to 30% and assorted exemptions being removed.
However, alternates for sensitive areas of personal taxation may provide the government with more flexibility. Key areas like exemption on housing loans and sops for senior citizens, which witnessed strong criticism from a BJP committee led by Rajnath Singh, have been provided with such options.
In a move that would keep the poor and middle classes happy, the committee has recommended that these sops be provided for incomes up to Rs 5 lakh per annum. Individual ceilings on the quantum of exemption has also been prescribed, sources said.
The report on direct taxes is likely to specify a tax set-off of up to Rs 50,000 or Rs 75,000 for mortgage interest, bringing down the exemption limit by almost 50% of the existing level of Rs 1,50,000 per annum.
Exemptions for senior citizens are expected as the finance minister has already spoken his mind on protecting weaker sections. For the salaried class, the panel has recommended phaseout of exemptions with the gradual hike in exemption level to Rs 1 lakh as compared to the current level of Rs 50,000 per annum.
Apart from procedural changes, Mr Kelkar stuck to its guns on taxing of agriculture income. The consultation paper on direct taxes had said that farm income should be taxed by the Centre and distributed to states.
Taxing of this sector would check evasion, Mr Kelkar feels while political lobbies are bitterly opposed to this proposal. The task force is of the view that it is for the government to decide whether such recommendations are to be accepted. However, simpler issues like computerisation of the Income Tax machinery could be done without much opposition.