Jaswant doles out more goodies, sets 'sunset clauses' issue at rest

NEW DELHI: Finance Minister Jaswant Singh on Wednesday assured the Lok Sabha of extending the exemption currently available to equity oriented schemes of MFs from 12.5% dividend distribution tax for another year, if the BJP led government is voted back to power. This brings clarity to an issue that had become confused on account of the finance minister’s silence on this particular sunset clause in his interim budget speech yesterday, and subsequent ‘clarification’ by senior officials that this sunset clause, too, would be extended.
The finance minister’s assurance means the following. The BJP-led government, if voted back to power, will amend the income tax legislation with retrospective effect to enable equity-oriented schemes of mutual funds to enjoy the benefit of the 12.5% dividend-distribution tax exemption for one more year. The benefit then would be available from April 1, ’04 to March 31, ’05. In any case, the dividend paid out by the mutual fund remains tax-free in the hands of the unit holder.
The Lok Sabha today passed the vote on account. Before that the finance minister announced a few more sops for select sectors. Wood-free particles and particle boards, which attracted an 8% excise levy, have now been exempt from excise duty. Tour operators have been given an abatement of 90% on their service tax payment. In other words, the service tax will have to be collected on only 10% of the billing for the service.
A special subsidy scheme for small tea growers featured in the fresh set of announcements today. A Rs 8 per kilo subsidy based on the auction price would be given to small tea growers. The special price subsidy will help meet the needs of growers.
Mr Singh also announced venture capital support for self employed. SIDBI which has a VCF, will establish a growth fund with an initial corpus of Rs 100 crore which would be subsequently enhanced to Rs 500 crore. Funds would be provided for small and medium enterprises in different sectors, including pharma, biotech, software, light engineering, etc. The fund will be operational from April 1, ’04. Besides, the recommendations of a committee headed by the Andhra Pradesh chief minister on micro irrigation would be operationalised soon, he said. The minister also expressed his ministry’s unhappiness about the stickiness in interest rates when it comes to the farm sector when compared with the ease with which interest rates go down for the corporate sector. Mr Singh also said that the government will not reduce the farm subsidies.
“The dividend-distribution tax exemption available to open-ended equity funds must continue for one whole year beyond March 1, ’04,� Mr Singh told the Lok Sabha in his reply to the debate o on the interim budget. Out of 13 sunset clauses set to expire by the end of the current fiscal, the finance minister had taken up only the tax exemption of capital gains on listed securities for mention in his budget speech on Tuesday, to state his intent to extend it beyond the current fiscal.
All such intentions are promises that will weigh in after the elections, whoever comes to power, but do not find reflection in the finance bill that has been voted and approved for the ’04-05. The new government would have to legislate with retrospective effect for the period of the fiscal ’04-05 that would have elapsed before the regular budget is passed for the year, in order to extend the sunset clause that expire on or before March 31, ’04.
The one-year exemption has also been given to UTI MF which manages all the NAV-linked schemes. For UTI-I, which is vested with all the assured return schemes, the exemption is open-ended. Mr Singh, however, clarified that there was no change in the regime on dividend distribution tax for domestic companies. Prior to April 1, ’03, dividends were taxed in the hands of the shareholders.
However, this policy was changed in the ‘04 budget as the government made dividends tax-free in the hands of shareholder. Instead, it imposed a 12.5% dividend distribution tax on local companies. This regime will continue, according to the FM. Similarly, investors purchasing listed equity shares on or after March 1, ’03 up to February 29, ’04 and hold it for over a year, enjoy a capital gains tax exemption.
Mr Singh said on Tuesday that “the regime of listed equities acquired on or after March 1, ’03 being exempt from long term capital gains tax should be extended for a further period of three years, so as to provide stability�.
Here again, the government has given a commitment to extend the exemption for three more years if voted back to power. This means that the requisite amendments to the legislation for continuing the exemption would be made with retrospective effect when a full budget is presented.