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Chidambaram may revisit transaction tax rates

By Alok Mukherjee and P. K. Bhardwaj

NEW DELHI, JULY 12. The Union Finance Minister, P. Chidambaram, today indicated that he was willing to look at the contentious issue of transaction tax on securities, but only in terms of the percentage of tax proposed as the tax by itself was a neat, efficient tax.

Addressing the first post-budget inter-active meeting with industrialists at a FICCI (Federation of Indian Chambers of Commerce and Industry) forum here today, the Minister said the transaction tax was basically a replacement of the capital gains tax regime that was distorting the market and was, perhaps, encouraging tax avoidance. The idea for the transaction tax had come from the broker community and foreign institutional investors and a zero tax on long-term capital gains, a 10 per cent on short-term gains and 0.15 per cent on transactions were proposed.

"I have these three numbers and it is a proposal which will become law only when the Finance Bill will be passed. If anyone has a better set of numbers, I am willing to look at that,'' Mr. Chidambaram told the gathering. Urging the industry leaders to accept the principle that transaction tax was efficient, neat, non-discretionary and virtually eliminates tax avoidance, he said "I want you friends to support the transaction tax even while I recognise your right to give me an alternate set of numbers.''

On the issue of raising sectoral ceilings on foreign direct investment (FDI) in civil aviation, telecom and insurance, he said the Government was trying to make the foreign investment regime transparent. For instance, in the telecom sector, the current FDI limit was 49 per cent but the holding company of the promoter could take another 25 per cent, which raises the foreign holding to 74 per cent in a non-transparent manner. "What is so far allowed in a non-transparent manner is now being proposed to be allowed in a transparent manner,'' he added.

In the case of civil aviation and insurance, he said the proposal was to raise the 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 would still remain in Indian hands. As FDI in airports has been pegged at 49 per cent, there was no reason to have a different limit for civil aviation. In the insurance sector, the announcement about raising the FDI limit followed demands from private insurers, who wanted to infuse more capital. He made it clear the FDI regime did not in any way affect public sector insurance companies such as the Life Insurance Corporation of India the General Insurance Corporation of India, as foreign investment was allowed only in the private sector.

Turning to the special emphasis on agriculture in his budget, Mr. Chidambaram said the United Progressive Alliance Government had received a complex electoral mandate and as Finance Minister, it was his duty to interpret the mandate and act accordingly. "If you share my interpretation of the mandate, then you will understand the philosophy behind this budget,'' the Minister said and added that the mandate necessitated not only the continuation of the reforms taken up in the past few years but also measures which were not taken up. He particularly referred to the agriculture sector, the basic needs of rural India and social areas like education and primary health. These were neglected in the last few years, he said and he had no apologies to make for earmarking 50 per cent of the budgetary resources for the agriculture sector since large section of the population was dependent on it for the livelihood.

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