TIOL-DDT 607 · the untouched capture
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<p align="justify"><font size="3" face="Verdana, Arial, Helvetica, sans-serif"><b><font color="#663399">TIOL-DDT 607</font></b><b></b></font><font face="Verdana, Arial, Helvetica, sans-serif"><font size="2"><b><br>
07.05.2007<br>
Monday</b></font></font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Valuation of rent-free accommodation – FM announces retrospective concession : FM on his budget</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Replying to the budget debate, Finance Minister P. Chidambaram told the Parliament:-</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>How is Education Cess shared? </b>While education cess is not directly shared with the States, the amount collected goes into a non-lapsable account to support Sarva ShikshaAbhiyan and the Mid-day Meal Scheme. The SSA and Mid-day Meal Scheme which are implemented in the States are largely funded by the Central Government. Thus, the States receive more than the 30 per cent share that they would have received if the education cess had been collected as a normal tax. As far as the collections under cess and surcharge are concerned, the figures are: in 2006-07, according to Revised Estimates, the collection will be Rs.8,973crore and in 2007-08, according to Budget Estimates, it will be Rs.15,592crore.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>And How is export duty to be shared? </b>Export duty on iron ores will be shared with the States according to the normal formula applicable to customs duties. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>How many millionaires in the country? </b>In 2003-04, the number was approximately 97,500. In 2005-06, the number is estimated to have increased to approximately 140,000, and I believe the number ought to have increased further in 2006-07. Nevertheless, I believe that the number is still too small. The efforts that the Government is taking to improve tax compliance should motivate more people to declare their true income. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Tax on Dividends </b>There is a tax on dividends, called Dividend Distribution Tax (DDT) and collected at the point where dividends are distributed. This is a neat and efficient way of collecting the tax. I have also raised the rate of DDT from 12.5 per cent to 15 per cent this year. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Banking Cash Transaction Tax </b>The BCTT continues to be a valuable tool to track unaccounted monies and trace their source and destination. I have innumerable examples to support my argument. Further, I have exempted Central and State Governments from the scope of BCTT and have raised the limit for individuals and HUFs from Rs.25,000 to Rs.50,000. I would like to ask, respectfully, how many individuals or HUFs withdraw more than Rs.50,000 per day per current account? Anyway, I have promised to review BCTT next year when other instruments in place to track unaccounted monies become effective. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Tax arrears </b>Under direct taxes, as against a collection out of arrear demand of Rs.5,540crore in 2003-04, the collections in the next three years have been Rs.7,084crore, Rs.8,064crore and Rs.12,285crore. Similarly, under indirect taxes, as against Rs.669crore of arrears collected in 2003-04, the collections in the following three years have been Rs.2,642crore, Rs.3,139crore and Rs.3,466crore. We shall continue to make stronger efforts to collect the tax arrears. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Not too good excise collections - More raids and Audit? </b>I may add that actual collections of excise in 2006-07 fell short of the budgeted estimates by only 1.47 per cent. Beginning April 1, 2007, we have introduced mandatory e-payment of excise duty by assessees who have an annual excise liability of over Rs.50 lakhs. <b>We are also strengthening the DGCEI and increasing audit of assessees</b>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Why Service Tax? </b>As on date, 100 services have been brought under service tax. Of this, three services were added during the period 1994 to 1996; 12 services were added during the period 1996 to 1998; 47 services were added during the period 1998 to 2004; and 44 services have been added by the UPA Government, but six services have been compressed into one. There is nothing unusual about 100 services being brought under the tax net. The services sector accounts for 56 per cent of the GDP. Service tax is a value added tax. Just as excise duty is a tax on value addition on goods, service tax is a tax on value addition by rendering services. The word ‘service’ has to be understood in this context. It is used in contra-distinction to ‘goods’. Although services account for 56 per cent of GDP, service tax contributed only 7.92 per cent of the total tax collections in 2006-07. Service tax revenues will grow in the future. Further, we are moving towards a Goods and Services Tax with effect from April 1, 2010. GST will fall on all goods and services, and I hope that the exceptions, if any, will be very few. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Service Tax on Renting: </b>Renting is also an activity that goes into the calculation of GDP. It is a value added service. It is liable to service tax. That is the universal practice. We have introduced service tax only in respect of renting of large commercial properties. Small shops and establishments are exempt because of the enhanced threshold exemption of Rs.8 lakhs for the service provider, i.e., the landlord in this case. Residential properties are exempt. Exemptions have also been granted for properties used for education and religious purposes and land used for sports and entertainment. Of course, service tax would have to be paid in respect of large shopping malls or commercial complexes, but the service tax paid can be set off as input credit against service tax or excise duty payable. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>No problem about officers leaving the department:</b> Since June 2004, 103 Group ‘A’ officers out of a total number of 4,150 have left the service. We have recruited on an average about 65 Group ‘A’ officers every year in the last five years to the Income Tax Department. Hence, there is no cause for alarm. I may add that about 80 per cent of those who left service are promotee officers who prefer to leave the service rather than be subject to transfer to a place outside the zone in which they were originally recruited. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Export Duty on iron ore:</b> The export duty on iron ores was imposed with the twin objective of conserving minerals and raising some revenue. Iron ore fetches very high prices in the world market. Prices rose in 2006-07 by about 19 per cent and in April, 2007-08, prices have risen by another 9.5 per cent. The export duty on iron ore lumps has been welcomed by all sections. Some representations have been received on export duty on iron ore fines, especially fines with low Fe content. After extensive consultations, I propose to reduce the export duty on iron ore fines of Fe content 62 per cent and below to Rs.50 per tonne. On iron ore fines with Fe content above 62 per cent and on iron ore lumps, the duty will remain at Rs.300 per tonne. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Reduction of customs duty on Nickel: </b>Nickel prices have risen substantially over the last one year and touched US$50,000 per MT in April, 2007. Nickel is not available within <st1:place w:st="on"><st1:country-region w:st="on">India</st1:country-region></st1:place>. It is an important input for steel industry. Hence, I propose to reduce the customs duty on Nickel from 5 per cent to 2 per cent. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Reduced Customs duty on Refrigerated motor vehicles:</b> Refrigerated motor vehicles will be required for transportation of perishable agricultural products. I therefore propose to reduce the customs duty on such vehicles from 10 per cent to zero and the excise duty/CVD from 16 per cent to 8 per cent. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Cut and polished Diamonds:</b> I had reduced the customs duty on cut and polished diamonds from 5 per cent to 3 per cent. The Gems and Jewellery industry has represented that the duty should be at zero per cent in line with other countries. Ministry of Commerce has supported this proposal. Accordingly, the duty will be reduced to zero per cent. However, if we find that the decision adversely affects the import of uncut diamonds or adversely affects employment in the cutting and polishing industry, we shall immediately review the decision. It is our intention to preserve, nurture and expand the cutting and polishing industry in <st1:place w:st="on"><st1:country-region w:st="on">India</st1:country-region></st1:place>. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Ready to eat without excise:</b> Soya <st1:place
w:st="on"><st1:City w:st="on">bari</st1:City></st1:place> is a nutritious food supplement. Ready to eat packaged food are also becoming popular. These two items alone attract 8 per cent excise duty. All other food mixes have been exempted from excise duty. Hence, I propose to exempt soya <st1:place w:st="on"><st1:City w:st="on">bari</st1:City></st1:place> and all ready to eat packaged food from excise duty. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Low cost biscuits to taste better:</b> In the Budget Speech, I had proposed to exempt from excise duty biscuits whose retail sale price does not exceed Rs.50 per kg. In response to representations, I propose to exempt biscuits whose retail sale price does not exceed Rs.100 per kg.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>No cementing relation:</b> Cement prices continue to be high and are causing hardship to consumers. The cement industry did not respond positively to the dual excise duty regime. Hence, Government reduced the import duty to zero and removed CVD as well. The dual specific rates of duty have not brought the desired results and, hence, there is no point in continuing with the same. Therefore, after careful consideration, it has been decided to replace the dual rates on cement. The concessional specific duty of Rs.350 per MT for cement sold in retail at not more than Rs.190 per bag (of 50 kgs) will continue. In respect of cement sold at a price of more than Rs.190 per bag, an ad valorem duty at 12 per cent of the Retail Sales Price will be levied. The ad valorem levy is the normal way of levying excise duty. The result will be that the concession granted to cement sold at Rs.190 or less will continue. For cement sold at a higher price, the ad valorem rate will apply, and there will be an effective reduction of up to Rs.7 per bag on the excise duty liability. It is my expectation that the cement industry will respond positively to the changes announced now and reduce the price of cement.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Zip it up:</b> Zip fasteners are an important input in textile and leather garments. Zip fasteners come into the country at zero customs duty under various export promotion schemes. Domestic producers and some Honourable Members have represented against the excise duty of 16 per cent. Accepting these representations, I propose to reduce the excise duty from 16 per cent to 8 per cent.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>And zoom:</b> I had proposed to levy customs duty, CVD and additional customs duty on import of aircraft excluding imports by Government and scheduled airlines. Ministry of Civil Aviation has made a strong representation in favour of exemption for aircraft imported for training purposes by flying clubs and institutes and for non-scheduled point-to-point and non-scheduled charter operators under conditions of registration to be specified and recommended by that Ministry. Since civil aviation is a nascent and growing industry, it has been decided to accept this request and exempt these categories also from the duties. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Value of Rent-free or concessional accommodation – retrospective concession!: </b>Since 1987-88, rent-free or concessional rent accommodation was taxed at 10 per cent of salary or the fair market rent, whichever was less, minus the rent actually paid. In 2001-02, the concept of fair market rent was dropped and the value of the concessional accommodation was taken as 7.5 per cent or 10 per cent of salary, depending upon population, minus the actual rent paid. In financial year <b>2005-06</b>, the value of the concessional accommodation was revised to 15 per cent or 20 per cent, as the case may be, depending upon the population. Being responsive to suggestions and in order to give relief, I have reviewed the rate to be applied for putting a value on the concessional accommodation. I have decided that the rate shall be reduced from 20 per cent to 15 per cent if the population is above 25 lakhs; to 10 per cent if the population is between 10 lakhs and 25 lakhs; and to 7.5 per cent if the population is below 10 lakhs. Thus, every employee will get substantial relief. I also propose to give retrospective effect to the reduction from financial year 2005-06, which is the year when the 20 per cent rate was introduced. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Taxing ESOPS: </b>Representations have been received against taxing Esops as a fringe benefit. Worldwide, Esops are subject to tax. What we have done is no different, except that we have levied the tax on the employer who may, by agreement with the employee or by making a provision in the Scheme, recover the tax from the employee. Hence, the tax will stay. However, I propose to give some relief. The fair market value of the Esop for the purpose of taxation will be reckoned on the date of vesting of the option and not the date of allotment or transfer of the shares. The liability to tax will be attracted on the date of allotment or transfer of the shares and the period of holding of the Esop shall also be reckoned from the date of such allotment or transfer.</font></p>
<p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Update your website – CIC tells Commerce Ministry; CBEC and CBDT should take note</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The appellant had requested information on SEZ as</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i. Details of authorization (s), if any, made u/s 19(b) by Central Govt in regard to exercise of its powers under various Central Acts in mattes relating to SEZ in <st1:City w:st="on"><st1:place
w:st="on">Delhi</st1:place></st1:City>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii. Copies of notification (s), if any, issued under section 20 by Central Govt. to specify officer/agency for inspections for securing of compliance with the provisions of any Central Act in case of SEZ in <st1:City
w:st="on"><st1:place w:st="on">Delhi</st1:place></st1:City>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iii. Copies of notification (s), if any, issued under section 21(1) by Central Govt to specify as notified offences acts or omission punishable under any Central Act in force in <st1:City w:st="on"><st1:place
w:st="on">Delhi</st1:place></st1:City>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">iv. Copies of order (s), if any, issued by Central Govt. u/s 21(2) to authorize any officer or agency for enforcement in respect of notifies offence, if any have been notified, in <st1:City w:st="on"><st1:place
w:st="on">Delhi</st1:place></st1:City>.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">She did not get any reply and is before the Commission. She also told the Commission that the website of the public authority is not up to date in many respects. She averred that the information provided is not in tune with section 4 of the RTI Act. She insisted the departmental web-site should be updated periodically as and when the decisions are taken. She has made special emphasis to Sec. 4 disclosure which is not at all satisfactory in their web-site. The Commission directed the Department to </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">i. to instruct the concerned authorities to update the website details.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">ii. indicate the name of the AA clearly while giving his replies in future and strictly adhere to the time frame prescribed under RTI Act.</font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Though this order is pertaining to the Commerce Ministry, the Finance Ministry is no better. The web sites of the premier tax Boards, CBEC and CBDT are pathetic apologies. See the Act for Service Tax in the CBEC website, it has not been updated for more than an year. Yesterday, a senior Judge called me up and wanted some information on Service Tax. He had made a thorough search of the Service Tax web site and was totally dissatisfied. He pointed out an interesting item, he could find in the site. </font></p>
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<td><p align=center><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Future Course of Action</b></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The following items of works have to be attended to urgently to improve the administration of Service Tax in the country. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Target of Rs. 17,500 crores Service Tax collection for f.y. 2005-06 to be exceeded</font></p></td>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">This is the urgent work, the department is supposed to do! </font></p>
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<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To be fair, CBEC does not have a monopoly in not updating the websites, CBDT is worse. The SEZ site does not carry any of the latest notifications. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><u><a href="http://www.hrindiaonline.com/laws4u/rti1.php?filename=rti/2007/2007-HRIOL-04-CIC.htm" target="_blank">Appeal No. 424/ICPB/2006 Dated: April 27, 2007</a></u></font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until tomorrow with more DDT</font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day. </font></p>
<p align="justify"><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a> </font></p>
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