Financial Daily from THE HINDU group of publications
Saturday, Mar 01, 2003
`Service tax hike will lead to price spiral'
THE first Budget of the Finance Minister, Mr Jaswant Singh, is a pedestrian one.
Except for the proposed large infrastructure spending in collaboration with the private sector - which is likely to give a boost to the economy, particularly to sectors like cement and steel - there are no development-oriented proposals.
The Vijay Kelkar Committee report has more or less been totally ignored.
All exemptions continue, and in fact, have actually increased (standard deduction, Section 80 L, Section 88 deductions, etc).
The proposed dividend tax exemption in the hands of the recipient has been more than neutralised by an increased dividend distribution tax of 12.5 per cent on companies.
I feel that the increase in service tax and extending the area of coverage is going to result in a price spiral, in general.
Long-term capital gains exemption is only in the case of fresh investments in equity.
This means that no benefit will accrue in the coming year, and all investments made till date will have to bear capital gains tax.
This should not have been the case.
The Finance Minister should have applied it to all long-term capital gains.
The clear announcement by the Finance Minister during the course of his speech on the introduction of value added tax (VAT) from April 1, 2003 is a welcome step.
Mr Singh's assurance that the Centre will compensate 100 per cent of the accruing loss to the States in the first year on the basis of an agreed formula has removed all the uncertainties in this connection.
The author is Managing Director, Electrosteel Castings Ltd.
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