The Hindu Business Line : `Budget is not inflationary' — Transaction tax no impediment to stock market activities

ON a busy day after presenting the maiden Budget of the United Progressive Alliance (UPA) Government, the Finance Minister, Mr P. Chidambaram, took time off to share his views with Business Line on some of the finer aspects.

He maintained that the revenue projections were not "ambitious" and said that the Budget would not turn out to be inflationary. On the securities transaction tax, he said that the move was prompted by demands from market players. Excerpts from the interview:

The tax collection estimates for 2004-05 suggest that you are betting on growth. You have taken credit for a major jump in gross tax collections?

Under which head?

Corporation tax.

Let us take corporation tax. The Interim Budget had assumed Rs 79,546 crore. If that is a credible figure then why is my Rs 88,439 crore not a credible figure? I have taken into the cess and a tidy sum for collection of arrears.

Basically, you are betting on higher growth.

There is higher growth. There is buoyancy in tax revenues.

There are fears that the Budget could turn out to be inflationary because of the cess in indirect taxes and hike in service tax.

How is the cess inflationary? It is 35 per cent corporate tax. If you put two per cent, that makes it 35.7. How is 35.7 inflationary? And it is also rebatable on service tax and excise duty also. So, there is no cascading effect. I have given away so much by way of excise and Customs duties.

Could the securities transaction tax turn out to be an impediment to higher volumes in the stock market?

The stock market players themselves came forward with this idea. The FIIs, the brokers said that there are too many capital gains tax rates. Therefore, please replace it with a securities transaction tax at a neat small rate. We have chose one of the smallest rates in the world - 0.15 per cent.

Doesn't this close the Mauritius route?

No, it doesn't. Yes, it doesn't make it advantageous for them (FIIs). But why did they come in through the Mauritius route? Because we had a huge capital gains tax and the double tax avoidance agreement was beneficial.

You have retained the SDS interest rate at eight per cent. Does that mean that there would no leeway for hike in EPF rates?

That is for the EPFO trustees to decide. I have made it clear that last year we paid eight per cent and this year we will pay eight per cent. It is eight per cent that we are giving for PPF, for GPF and that's what we intend to give for the SDS also.

The Left has criticised the FDI hike insurance.

They have a reservation. I am not disputing it. They had a reservation even about the 26 per cent. We will talk to the Left and we will try to convince them.

On NTPC disinvestment, the Left is again critical.

If I (the Government) do not disinvest I will not get any value for my holding. If you do it (public offering) 10 times, the Government holding will come to 51 per cent, but I will not get any value for my holding. Therefore, I am piggyback riding on the IPO.