Transaction tax may be cut

6-7.4% growth this fiscal would be satisfactory, says Chidambaram.

Finance Minister P Chidambaram on Monday told industry representatives he was prepared to revisit the transaction tax rate of 0.15 per cent.

"If anyone can provide me with a better set of numbers than the proposed 0 per cent, 10 per cent and 0.15 per cent tax on long-term capital gains, short-term capital gains and securities transactions, respectively, I will consider that," he said in his post-Budget meetings with the Federation of Indian Chambers of Commerce and Industry (Ficci)and the Confederation of Indian Industry (CII).

However, he indicated that the transaction tax was here to stay. "The transaction tax is efficient, neat, non-regressionary, eliminates tax avoidance and everybody contributes to the exchequer," he told Ficci.

The idea for the tax, he said at the CII function, actually came from stock brokers and foreign institutional investors (FIIs).

When asked about his growth expectation for the current fiscal year, Chidambaram said he would be happy if it was between 6 per cent and 7.4 per cent.

"Eight per cent growth is difficult after a year of 8.2 per cent growth. The 8.2 per cent growth of 2003-04 was on the back of a low 4 per cent in the previous fiscal, which is a slight statistical illusion," he said.

On the service tax rate being raised from 8 per cent to 10 per cent, Chidambaram said the effective rate would be 6-7 per cent after factoring in the excise rebates.

"This is the first step towards a goods- and-services tax," he said, adding that globally the single goods-and-services tax (GST) rates were between 16 per cent and 17 per cent."

Chidambaram also defended the proposal to hike foreign direct investment (FDI) caps in insurance, aviation and telecommunications.

Chidambaram said in the telecom sector several operators had effectively breached the 49 per cent cap by divesting in step-up holding companies. By hiking the ceiling to 74 per cent, the same operators would be able to do it in a more transparent way, he added.

Raising the FDI cap in insurance from 26 per cent to 49 per cent and in aviation from 40 per cent to 49 per cent would make no material difference in the functioning of the companies concerned, he added.

Referring to the opposition from the Left parties to the FDI proposals, the finance minister said, "If the Left parties are not happy with just a couple of points in the 150-odd paragraphs in the Budget, I must have done a good job."

Chidambaram said the Budget addressed the concerns of the agriculture sector and comprehensive tax reform would be carried out in the next Budget after taking into account the suggestions of the Kelkar task force, which would submit its report soon.

"I am a votary of tax reforms. None of my successors tinkered with my income tax rates of 10, 20, 30 per cent (introduced in 1997) because they are comprehensive... If compliance improves, we can take a relook," he said, hinting at revising income tax and corporate tax rates in future.

He hinted at flexible labour laws in special economic zones as part of the comprehensive law on special economic zones (SEZs), which would provide for a new fiscal and regulatory regime.