UNION BUDGET 1999 ( from India world)
dhan.com
- Markets react well to Sinha's magic
- Bonanza for Mutual Fund Industry
- New Gold bond scheme announced, tax exemption on interest earned
- Long Term Capital Gains tax for Residents Indian and NRIs equalised at 10 pc
- Major programme to strengthen banks by reducing non-performing
assets
- BSE Sensex closed on Saturday post-budget 3399, up 166
- Software, Pharma Industry, FMCG scrips flare-up
STRATEGY OF BUDGET
* Begin process to restore fiscal health of nation by reducing
revenue and fiscal deficits.
* Revitalise programmes for human resource development to empower
the poor.
* Undertake major reform of Indirect taxes to boost productivity and
employment.
* Deepen economic reforms to improve performance of all sectors.
* Safeguard economy from international economic turbulence, revive
exports and domestic economy.
* Strengthen foundations for Science and Technology and realise full
potential of knowledge-based industries.
MAJOR TAX INITIATIVES
* Special customs duty of 5% abolished.
* Customs duty structure rationalised into only 5 rates.
* Peak protective customs duty rate down from 45% to 40%.
* Surcharge at rate of 10% on basic customs duties imposed for
revenue.
* Petroleum products exempted from this new surcharge.
* 10% surcharge on individuals, HUFs etc. for those with income
above Rs. 60,000. This means individual in 20% slab will now pay
22% and person at the top 30% slab will now pay 33% 10% surcharge
on companies to meet revenue needs.
TAX WELFARE MEASURES
* Deduction for health insurance premium for senior citizens raised
from Rs. 10,000 to Rs. 15,000.
* Deduction for medical treatment of serious diseases raised from
Rs. 15,000 to Rs. 40,000.
* Pension and Family Pension of Gallantry Award Winners exempted
from income tax.
CAPITAL MARKET AND FINANCE
* Income from UTI and other Mutual Funds to be exempted in hands of
unit holder; instead 10% tax to be paid by mutual funds on income
distributed.
* To strengthen UTI income distributed under US 64 scheme and other
equity oriented schemes will be exempt from the above 10% levy for
3 years.
* US 64 being restructured with Government assistance to remove
uncertainty and boost market confidence.
* Joint mechanism set up between SEBI and Department of Company
Affairs for stringent action against unscrupulous promoters.
* National award for Excellence in Corporate Governance.
* Stamp duty on transfer of debt instruments within the depository
mode to be abolished.
* Major programme to strengthen banks by reducing non-performing
assets.
INFORMATION TECHNOLOGY
* Customs duty on number of items used in IT sector reduced.
* Special tax deduction for capital expenditures to make computer
system Y2K compliant.
SCIENCE AND TECHNOLOGY
* Creation of a national foundation for helping innovators at grass
roots level. This Fund will build a national register of
innovations, mobilise intellectual property protection, set up
incubators for converting innovations into viable business
opportunities and, help in dissemination across the country.
* Technology Mission on Vaccines to be set up.
* A National Bio-resources Board (NBB) to coordinate policies,
research, documentation and legal protection of the country's
rights in genetic resources.
* Weighted deduction scheme under income tax for Research and
Development extended to 2005.
* 125% weighted deduction for a research project entrusted to a
university/research institute.
AGRICULTURE
* Watershed Development Fund, with Central Government’s
matching assistance, with NABARD to cover 100 priority districts
within 3 years.
* Enhanced Central contribution under the Accelerated Irrigation
Benefit Programme to States, which rationalise water rates to
cover at least Operations and Maintenance costs.
* One time management subsidy and recurring assistance over an
initial period of 3 years to all registered Water Users
Associations, linked to incremental water rate collection.
* A new credit-linked capital subsidy scheme for construction of
cold storages and godowns to create additional cold storage
capacity of 12 lakh tonnes and to rehabilitate and modernise 8
lakh tonnes of existing units. Also proposed to create 4.5 lakh
tonnes of onion storage capacity.
* Tax holiday benefit for cold chain/storage facilities.
* Experimental scheme of incentive discount to farmers for lifting
fertilizer from cooperative societies during April and May.
* Special assistance to States for consolidating fragmented land
holdings.
RURAL CREDIT
* Corpus of Rural Infrastructure Development Fund V enhanced from
Rs. 3000 crore to Rs. 3500 crore. The repayment period is also
being extended from five to seven years.
* Kisan Credit Card Scheme extended to cover two million farmers in
1999-2000. Six lakh cards already issued.
* Regional Rural Banks to be recapitalised to the tune of Rs. 168
crore. NABARD and SIDBI to redouble their efforts for flow of
funds to micro enterprises and ensure coverage of at least 50,000
Self-Help Groups during the course of the year.
* Lending by banks for food and agro processing industries will be
treated as priority sector lending.
* National Human Development Initiative with focus on Rural Poor
(Year of GRAM SABHA)
FOOD SECURITY
* ANNAPURNAM - scheme for indigent senior citizens to be provided 10
kg of foodgrain per month free of cost through the Gram
Panchayats.
HEALTH CARE
* The existing programmes for health care to be integrated and the
existing programmes for health care, family welfare, rural
development and related areas synergised. Funds will be provided
to the Gram Panchayats.
EDUCATION
* Education Guarantee Scheme to provide an elementary school in
every habitation, which does not have one within a radius of 1 km.
At least 1.8 lakh such schools will become operational during the
next three years of the Ninth Plan. Gram Panchayats will play lead
role.
EMPLOYMENT
* Jawahar Rozgar Yojana to be modified as "Gram Samridhi Yojana" to
ensure that all funds are placed at the disposal of Gram
Panchayats for creation of rural infrastructure.
* "SWARAN JAYANTI GRAM SWAROZGAR YOJANA" with integrated
self-employment programmes for the rural poor.
* Employment Assurance Scheme will give special priority to areas
with endemic unemployment and greater role for Zila Parishads and
other elected representatives.
SHELTER
* "Samagra Awas Yojana" new scheme to ensure integrated provision of
shelter, sanitation and drinking water, reflects Government's
priority to provide shelter to all shelterless poor households by
the end of the Ninth Plan. This will embrace existing programmes
including Indira Awas Yojana.
NATIONAL PROGRAMME FOR RURAL INDUSTRIALISATION
* A programme with a mission to set up 100 rural industrial clusters
every year. SIDO and KVIC to play an important role in this.
HOUSING
* Golden Jubilee Rural Housing Finance Scheme of National Housing
Bank (NHB) to target 1.25 lakh units in 1999-2000.
* Raising tax deduction on interest on house loans for Self-Occupied
houses from Rs. 30,000 to Rs. 75,000.
* Strengthen housing finance companies through liberal tax treatment
of income on non-performing assets.
* Increased depreciation allowed for businesses building houses for
employees.
* Changes in foreclosure laws etc. to promote housing mortgages.
* Commercial banks to lend up to 3% of incremental deposits for
housing.
* New NHB scheme for interest rate concessions for small borrowers.
INDUSTRY AND INFRASTRUCTURE
* Major overhaul of Excise with present 11 rates going to only 3,
with central rate of 16%, merit rate of 8% and demerit rate of
24%.
* Restoration of 100% MODVAT availment.
* Major direct tax initiative to facilitate industry restructuring
through mergers and amalgamations.
* Boost to Capital Goods Industry through removal of customs duty
anomaly on Steel
* New Competition Law promised to replace Monopolies and Trade
Restrictive Practices Act.
* Technology Upgradation Fund scheme for Textile industry extended
to Spinning industry.
* To level playing field for domestic industry, minimum 5% customs
duty introduced on some products and principle of countervailing
duties extended in capital project sectors.
* Infrastructure sector tax holiday extended to power transmission.
* Massive thrust for road construction financed by diesel surcharge.
SCALE SECTOR (SSI)
* General SSI excise exemption scheme extended to cotton yarn.
* SSI excise exemption schemes for manufacture of cosmetics and
refrigeration liberalised.
* Excise duty exemption to be allowed for goods made by SSI units in
rural areas and sold under brand name of another person.
* Eligibility limit for availing the exemption is being enhanced
from Rs. 50 lakh to Rs. 100 lakh.
* SSI units allowed facility to pay excise duty on monthly basis.
* Limit for composite loans is being raised from Rs. 2 lakh to Rs. 5
lakh.
* Annual turnover limit of SSI units raised from Rs. 4 crore to Rs.
5 crore for computation of working capital limits.
* Lending by banks to non-banking finance companies or other
financial intermediaries for purposes of on lending to the tiny
sector to be part of priority sector lending.
* New credit insurance scheme for Small-Scale units.
EXTERNAL SECTOR
* Export credit scheme in foreign currency revamped to provide
credit at competitive rates.
* New Foreign Investment Implementation Authority (FIIA) for
expediting foreign direct Investment (FDI) approvals into
projects.
* List of industries for automatic approval of FDI being expanded.
* New Gold Deposit Scheme supported by tax incentives to mobilise
idle gold and thus reduce gold imports.
NON-RESIDENT INDIANS (NRIs)
* Facility of automatic approval for 100% investment by NRIs/OCBs
for all items, with some exceptions.
* Major Stock Exchanges to open screen-based automated trading
terminals abroad to facilitate the participation of NRIs.
EXPENDITURE MANAGEMENT
* Fiscal deficit and Revenue deficit targeted to be decreased by
0.5% and 0.7% of GDP respectively.
* Priority allocation for Agriculture (Plan outlay 35% up) and
Social Services (Plan outlay 22% up).
* The process of downsizing of Government being initiated by
abolishing four Secretary-level posts, w.e.f. April 1, 1999
through a process of merger and rationalisation of Central
Government departments.
* An Expenditure Reforms Commission to be constituted to reduce the
role and the administrative structure of the Government.
* System of Zero Base Budgeting to be initiated for preparation for
the next Budget.
* Guarantee Redemption Fund created.
PSU REFORM/DISINVESTMENT
* Government support through interest subsidy/guarantees to profit
earning PSUs to encourage them to raise bank loans for VRS.
* Disinvestment target for 1999-2000 at Rs. 10,000 crore.
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POST BUDGET REACTIONS from Sunil Kothare , Chartered Accountant
Corporate Tax Proposals :
1. Mergers and acquisitions to be tax neutral on certain conditions.
Beneficiaries : Piramal Healthcare, Sun Pharmaceuticals
2. Demergers to be tax neutral.
Beneficiaries : TISCO
3. Stock options and sweat equity taxable.
Losers : Software companies, MNCs.
4. Buy back to be treated as capital gains.
Beneficiaries : Reliance
5. Mutual fund dividends to be tax free but Mutual Fund to pay
dividend tax if investment in equity below 50%.
Beneficiaries : Open ended growth schemes
6. Benefits of interest deduction for self-occupied property,
deduction in respect of bad debts as Non Performing Assets.
Beneficiaries : HDFC
7. Y2K expenditure deducatable in Financial Year 1999-2000
Beneficiaries : All Software companies in Y2K
8. Inhouse R&D expenditure, weighted deduction at 125% time limit
extended upto 2005.
Beneficiaries : Dr. Reddy Laboratories, Ranbaxy, Piramal Health care,
Sun Pharma
Individual Tax Proposal
Gold Bond Scheme
* Gold Bonds scheme to be introduced as gold deposit scheme.
* Coupon Rate was not mentioned in the speech.
* Interest Income will be exempt from Income Tax.
* Value of bonds will exempt from Wealth Tax.
* Capital gains on sale of bonds to be tax free.
* However, this is not an amenesty scheme. The source of gold will
have to explained by the investor.
FERA
* NRI / OCBs to be allowed 100% investment in all areas except
restricted areas like plantation, agriculture & others to be
notified.
* NRI investment in mutual funds to be without prior approval of RBI
and subject only to post facto reporting to RBI.
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POST BUDGET REACTIONS FROM RASHMIN SANGHVI, CHARTERED ACCOUNTANT
1. Share Market
Question - Will the Indian Share market improve on presentation of
Budget 1999 by finance minister Mr. Sinha ?
Answer - Budget cannot improve the share market.
Market will ofcourse react. However, on a medium term basis, the
budget will not improve the market.
Market will improve only when the small investor regains confidence in
the Indian market systems. As Mr. N. A. Palkhiwala has repeatedly
stated, "India is a scoundrel's paradise". Anybody and everybody can
cheat the small investor and almost nothing happens to him. This month
only, we read in Times of India in a small corner news item that one
of the accused in a large scam of public issue has been released by
CBI and all cases against him are wound up.
If the Indian regulatory system cannot punish the cheaters how can the
investor have confidence in system ?
Even the judicial system has not yet punished the people accused in
the "Securities Scam". In the eyes of the common investor, the Indian
judicial system has failed.
Budget and Mr. Sinha cannot improve either the regulatory system or
the judicial system. Hence investor confidence cannot be improved.
Hence share market cannot be improved.
Finance minister said " The Securities Scams had occurred during the
Congress rule". However, the pardon to the accused is given by the BJP
government.
Rashmin Sanghvi is a Chartered Accountant practising at Mumbai since
1975. He is a lecturer at Jamnalal Bajaj Institute of Management on
the subject of International Taxation. He has presented several papers
in several conferences on the subjects of "Foreign Collaborations",
"Indian economy", and "Indian Investment Climate". His own website
is: rashminsanghvi.com
MORE REACTIONS and ANALYSIS at dhan.com |
