Facing all around attack, Finance Minister Arun Jaitley today withdrew his Budget proposal to tax employees' provident fund (EPF) at withdrawal.
Jaitley had in his Budget for 2016-17 proposed to tax withdrawal of 60 per cent of accumulations in the employee provident fund after April 1, 2016.
This was criticised by all employees unions as well as political parties.
"In view of representations received, the government would like to do a comprehensive review of this proposal and therefore I withdraw the proposal," Jaitley said in a suo motu statement in Lok Sabha.
He however stated that 40 per cent exemption given to National Pension Scheme (NPS) subscriber at the time of withdrawal remains.
In his budget proposal, Jaitley had proposed that 40 per cent of the EPF withdrawals would be tax exempt and the remaining 60 per cent would also get the same treatment provided the amount is invested in pension annuity schemes.
This proposal was criticised by the parties and the unions which said it amounted to forcing employees to invest in pension annuity schemes.
"Employees should have the choice of where to invest. Theoretically such freedom is desirable, but it is important the government to achieve policy objective by instrumentality of taxation. In the present form, the policy objective is not to get more revenue but to encourage people to join the pension scheme," Jaitley said explaining the rationale for the taxation proposal.
The proposal would not have impacted 3.26 crore EPFO subscribers drawing statutory wage of upto Rs 15,000 per month. Employees Provident Fund Organisation (EPFO) has a total subscriber base of 3.7 crore.
Jaitley said India has been trying to expand in the
infrastructure area in a big way in past few years.
"We have one of the fastest highway and rural road construction programmes. We have a programme to upgrade 400 railway stations, create more airports and seaports, smart cities and these are all areas where we need a lot of investment," he said.
India, he said, is seeking a lot of investment in these infrastructure areas.
"And therefore we have liberalised our policies, created more instruments of investments. Our FDI policies are among the most open policies world over... So that we are in a position to get more investment and enabling environment to get that investment into India, we are open to all kinds of technologies, and India has a manpower resource," he said.
The Finance Minister said over the next decade or two India will be providing very qualified people globally at extremely competitive rates that will help the country emerge as a hub of skilled manpower.
Jaitley said banks today have a lot more money available
in order to lend for growth.
"Since this money constitutes low-cost deposits with the banks, it is bound to bring down the rate of interest. Both these things have already happened. Lakhs of crores, which were floating in the market as loose currency, have now entered the banking system. Not only has the money lost is anonymity, its owners, after being taxed, are entitled to put it to more effective uses," he said.
Jaitley said the Narendra Modi Government wanted to move against the shadow economy and black money from Day-1, and went on to list the steps taken including constituting SIT on black money and international cooperation in sharing information on base erosion and profit shifting.
"Modi Government is determined to act against the shadow economy and black money. All efforts in this regard till date have been fruitful," Jaitley later tweeted.
He said agreement was reached with Switzerland to get details of assets held by Indian citizens from 2019 and tax treaties with Mauritius, Cyprus and Singapore renegotiated to end round-tripping.
"PM Narendra Modi mustered international support against evils of black money since he took over as PM of India," Jaitley tweeted.
He said India enacted a law for dealing with black money outside India and a 'highly successful' Income Declaration Scheme (IDS) for domestic black money holders was launched.
Also PAN card requirement for cash transaction above Rs 2 lakhs has put hurdles on expenditure through black money.
Stating that GST, to be implemented this year, will provide for better indirect tax administration and being a more efficient law will check tax evasion, he said the demonetisation of high denominational currency notes was the big step in the same direction.
With the demonetisation, the size of the banking transactions and consequently the size of the economy is bound to increase, he said, adding that in the medium and long run, the GDP would be bigger and cleaner.
"Money entering into the banking system and officially
transacted would give an ample scope for higher taxation -- both direct and indirect. The Centre and the State Governments would both stand to gain. The economy would also be serviced by both cash and highly digitised transactions," he said.
Jaitley said there was a "marked difference" in the approach of Modi and his opponents in dealing with the menace of black money and terror financing.
"The Prime Minister was being futuristic, and thinking of a more modern, technology driven cleaner economy. He is now speaking of cleaning the political funding systems. His opponents want a cash dominated, cash generating and cash exchange system to continue.
"The difference between Prime Minister Narendra Modi and Rahul Gandhi was clear -- the Prime Minister was thinking of the next generation while Rahul Gandhi was only looking at how to disrupt the next session of Parliament," Jaitley wrote.
Stating that there was no social unrest while implementing the major demonetisation decision, Jaitley cited opinion polls conducted by independent media organisations which showed that an overwhelmingly large percentage of people have supported the government's decision.
"The opposition disrupted a full session of Parliament. Their protests have been ineffective. Their exaggerated claims on the disruption of the economy have proved wrong. It is a tragedy that a national party like the Congress decided to adopt a political position, opposing both technology, change and reforms. It sided with black money friendly status quo," it said.
