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Madam Speaker,

I shall now present my tax proposals.

139. In the formulation of these proposals, my priorities are directed towards making taxes moderate, payments simple for the taxpayer and collection of taxes easy for the tax collector.

I shall now deal with direct taxes.

140. As Government's policy on direct taxes has been outlined in the DTC, which is before Parliament, I have limited my proposals to initiatives that require urgent attention.

141. Last year I provided relief to individual taxpayers by broadening the tax slabs. To take us closer to DTC rates, I propose to enhance the exemption limit for the general category of individual taxpayers from `1,60,000 to `1,80,000 this year. This measure will provide a uniform tax relief of `2,000 to every taxpayer of this category.

142. Senior citizens deserve our special attention. For them, I propose

143. In the case of corporates, my initiative of phasing out the surcharge continues. I propose to reduce the current surcharge of 7.5 per cent on domestic companies to 5 per cent. Simultaneously, I propose to increase the rate of Minimum Alternate Tax (MAT) from the current rate of 18 per cent to 18.5 per cent of book profits to keep the effective rate of the MAT at the same level. As a measure to ensure equal sharing of the corporate tax liability, I propose to levy MAT on developers of Special Economic Zones as well as units operating in SEZs.

144. To attract foreign funds for financing of infrastructure, I propose to:

145. In order to promote savings and raise funds for infrastructure, an additional deduction of `20,000 for investment in long-term infrastructure bonds was notified by the Central Government in 2010-11. I propose to extend this window for one more year.

146. It has been represented that the taxation of foreign dividends in the hands of resident taxpayers at full rate is a disincentive for their repatriation to India and they continue to remain invested abroad. For the year 2011-12, I propose a lower rate of 15 per cent tax on dividends received by an Indian company from its foreign subsidiary. I do hope these funds will now flow to India.

147. In order to give a boost to production in the agriculture sector, I propose to extend the benefit of investment linked deduction to businesses engaged in the production of fertilisers.

148. Considering the importance of housing, I also propose investment linked deduction to businesses which develop affordable housing under a notified scheme.

149. In this Decade of Innovation, I enhanced the weighted deduction on payments made to National Laboratories, universities and Institutes of technology, for scientific research, to 175 per cent in the last budget. I propose to further enhance this to 200 per cent.

150. In order to strengthen our system of collection of information from foreign tax jurisdictions, I propose to provide a toolbox of counter measures to discourage transactions with entities located in non-cooperative jurisdictions as may be notified by the Government.

151. My proposals on direct taxes are estimated to result in a net revenue loss of `11,500 crore for the year.

153. I propose certain changes in the Central Excise rate structure to prepare the ground for the transition to GST, beginning with a reduction in the number of exemptions. At present, there are about 100 items that are exempt from Central Excise as well as State VAT. In addition, there are as many as 370 items that enjoy exemption from Central Excise duty but are chargeable to VAT. I propose to withdraw the exemption on 130 of these items that are mainly in the nature of consumer goods. The remaining 240 items would be brought into the tax net when GST is introduced.

154. A nominal Central Excise duty of 1 per cent is being imposed on the 130 items that are entering the tax net. No Cenvat credit would be available for the manufacture of these items. Basic food and fuel would continue to be exempt. This levy would also not apply to precious metals and stones. In case of jewellery and articles of gold, silver and precious metals, the levy would apply only to goods sold under a brand name.

155. Most of the States have increased their merit rate of VAT from 4 per cent to 5 per cent. In line with this, I also propose to enhance the lower rate of Central Excise duty from 4 per cent to 5 per cent.

156. Ready-made garments and made-ups of textiles are currently under an optional excise duty regime. A manufacturer is required to pay duty only if he wishes to avail of Cenvat credit. Our garment and made-ups industry has come of age and has shown handsome growth in recent years. As part of base expansion, I propose to convert the optional levy into a mandatory levy at a unified rate of 10 per cent. The levy would however, apply only to branded garments or made-ups and not to those tailored or made to order for a retail customer. Credit of tax paid on inputs, capital goods and input services would be available to manufacturers of these products. Keeping in mind the fragmented nature of this industry, full SSI exemption is also being extended to these products. Export of these items would continue to be zero-rated.

157. We have a long term commitment to align our customs duty rates to those prevailing in ASEAN countries. The peak rate of customs duty has been reduced over the years and has settled at 10 per cent. In view of continued uncertainties in the global economy, I propose to hold the peak rate at its current level. However, some rationalization is being done to unify three rates namely, 2 per cent, 2.5 per cent and 3 per cent at the middle level of 2.5 per cent.

158. I now turn to proposals that are aimed at encouraging some of the thrust sectors that are in need of attention.

159. Hon'ble Members would recall that, in the last Budget, I had announced a package of measures to improve the availability of storage and warehouse facilities for agricultural produce as well as to incentivize food processing.
I have received encouraging feedback on the impact of these measures. I propose to enlarge the scope of these exemptions by:

160. A concessional rate of basic customs duty of 5 per cent was provided to specified agricultural machinery in the last budget. This duty is being reduced further to 2.5 per cent and the concession is also being extended to parts of such machinery to encourage their domestic production.

161. Micro-irrigation is an environment-friendly and efficient means of irrigation especially for dry land farming. I propose to reduce the basic customs duty on micro-irrigation equipment from 7.5 per cent to 5 per cent.

162. De-oiled rice bran cake constitutes an important ingredient of cattle feed and its improved availability would have a positive impact on milk production. I propose to provide full exemption from basic customs duty to this item. Simultaneously, an export duty of 10 per cent would be levied to discourage its export.

163. For the manufacturing sector, my proposals seek to encourage domestic value addition vis-a-vis imports, to remove duty inversions and anomalies and to provide a level playing field to the domestic industry. The major proposals are to:

164. Iron ore attracts an export duty of 15 per cent in the case of lumps and 5 per cent in the case of fines. This is a natural resource which needs to be conserved. I propose to enhance the rate of export duty for all types of iron ore and unify it at 20 per cent ad valorem. Iron ore is also exported in a value-added, pelletized form. Full exemption from export duty is being provided to iron ore pellets to encourage the value addition process for fines.

165. As a measure of relief to cement industry, I propose to replace the existing excise duty rates with composite rates having an ad valorem and specific component with some rationalization. The basic customs duty on two critical raw materials of this industry viz. petcoke and gypsum is proposed to be reduced to 2.5 per cent.

166. To drive the financial inclusion agenda of the Government, I propose to fully exempt cash dispensers from basic customs duty. Full exemption is also being extended to parts of such machines to encourage their domestic production.

167. Full exemption from basic customs duty and a concessional rate of Central Excise duty of 4 per cent was provided to specified parts of electrical vehicles in the last Budget on actual-user basis. I propose to extend the concession to batteries imported by such manufacturers for the replacement market.

168. Fuel cell or Hydrogen cell technology is a promising green technology for the automobile sector. I propose to extend the concessional excise duty of 10 per cent to vehicles based on this technology.

169. Hybrid vehicles enjoy a concessional excise duty rate of 10 per cent. However, import dependence for their critical parts/ sub-assemblies is still quite high. It is proposed to grant specified parts of such vehicles full exemption from basic customs duty and special CVD. In addition, a concessional rate of excise duty of 5 per cent is being prescribed to incentivise their domestic production.

170. In response to the growing demand for green products, a technology has been developed indigenously for the conversion of fossil fuel vehicles into Hybrid vehicles through the fitment of a kit. I propose to reduce the excise duty on such kits and their parts from 10 per cent to 5 per cent.

171. In the last Budget, Central Excise duty on LED lights was reduced from 8 per cent to 4 per cent to promote their use. The basic component of these lights viz. the LED attracts an excise duty (hence, CVD) of 10 per cent and a special CVD of 4 per cent. The excise duty on LEDs is being reduced to 5 per cent and special CVD is being fully exempted.

172. The solar lantern enables our countrymen in far-flung villages to partake of developments in green technology. The basic customs duty on such lanterns is being reduced from 10 per cent to 5 per cent. Basic customs duty on a few more inputs used in the manufacture of solar modules/ cells is being reduced to Nil.

173. Environmental considerations demand promotion of laundry soaps which conserve water and are gentle on the soil. To this end, full exemption from basic customs duty is being provided to Crude Palm Stearin for use in the manufacture of laundry soap.

174. Pre-tanning or tanning processes in the leather industry use chemicals which are pollutants. To encourage use of green processes, full exemption from basic excise duty is being granted to enzyme based preparations for pre-tanning.

175. Capital goods imported for the expansion of existing mega or ultra mega power projects enjoy a concessional basic customs duty of 2.5 per cent and full exemption from CVD. This creates a disability for the domestic suppliers who are required to pay Central Excise duty on supplies to such projects. I propose to correct this anomaly by providing a parallel excise duty exemption.

176. Bio-based asphalt is an emerging, green technology for the surfacing of roads. Full exemption from basic customs duty is being extended to bio-asphalt and specified machinery for its application in the construction of national highways. Tunnel-boring machines required for the construction of highways are also being included in this exemption.

177. Works of art and antiquities are exempt from customs duties when imported for exhibition in a public museum or national institution. In recent years, many organisations have joined the cause of promoting and popularising both traditional and contemporary art. Some of them have been active in locating heritage works of Indian art and antiquities in foreign countries and bringing them back home. To encourage such initiatives, I propose to expand the scope of this exemption for works of art and antiquities to also apply to imports for exhibition or display, in private art galleries or similar premises that are open to the general public. Department of Culture will notify details of the scheme separately.

178. Full exemption from import duty is available to spares and capital goods required for ship-repair units. This exemption is being extended to imports by ship owners too.

179. The concessional basic customs duty of 5 per cent and CVD of 5 per cent, presently applicable to high-speed printing presses imported by newspaper establishments is being extended to mailroom equipment.

180. The Indian film industry has represented that colour, unexposed jumbo rolls of cinematographic film are not manufactured domestically and have to be imported. I propose to exempt jumbo rolls of 400 feet and 1000 feet from CVD by providing full exemption from excise duty.

181. I propose to provide outright concession to factory-built ambulances in place of the existing refund-based concession from excise duty. A refund-based concession is available to taxis having a seating capacity not exceeding 7 persons including the driver. I propose to extend this to vehicles upto a seating capacity not exceeding 13 persons including the driver.

182. Some of the other relief measures that I propose are:

183. My proposals relating to customs and Central excise are estimated to result in a net revenue gain of `7,300 crore for the year.

184. The actual collections of Service Tax do not reflect the full potential of this sector. While retaining the standard rate of service tax at 10 per cent, I seek to achieve a closer fit between the present service tax regime and its GST successor by:

185. I propose to levy service tax on the following new services:

186. I imposed service tax in 2010-11 on health check up or treatment. This levy has resulted in differential treatment between persons who make payments themselves and others where payments are made by an insurance company or a business entity. Thus, I propose to replace it with a tax on all services provided by hospitals with 25 or more beds that have the facility of central air-conditioning. Though the tax is on high- end treatment, I propose to sweeten the pill by an abatement of 50 per cent so that the actual burden is kept at 5 per cent of the value of service. I also propose to extend the levy to diagnostic tests of all kinds with the same rate of abatement. However, all Government hospitals shall be outside this levy.

187. I propose to raise the service tax on air travel by `50 in the case of domestic air travel and `250 on international journeys by economy class. I also propose to tax travel by higher classes on domestic sector at the standard rate of 10 per cent to bring it on par with journeys by higher classes on international air travel.

188. Services provided by life insurance companies in the area of investment are also proposed to be brought into tax net on the same lines as ULIPs. I propose to expand the scope of legal services to include services provided by business entities to individuals as well as representational and arbitration services by individuals to business entities. There shall, however, be no tax on services provided by individuals to other individuals.

189. There are certain other changes mainly by way of rationalisation or expansion in the scope of certain services or by plugging existing loopholes. I do not wish to take the valuable time of the House in further elaboration here.

190. The strength of a good value-added-tax lies in the free flow of the credit of the tax paid at the previous stage. Due to complexities, there have been many legal disputes on the availability of credit on a number of inputs or input services. These provisions are being rationalized by laying down clear definitions so that the scope of inputs and input services that are eligible and those that are not, is clear. Allocation of CENVAT credit to exempt and taxable goods and services is also being streamlined.

191. The number of assessees in service tax has grown manifold. I find that a large number of them comprise individuals or sole proprietors with small turnovers. Any audit at their premises tends to dislocate their activities for the duration of the audit. I therefore, propose to free all individual and sole proprietor taxpayers with a turnover upto `60 lakh from the formalities of audit. This will give relief to a large number of taxpayers. I also intend to give all assessees with turnover upto `60 lakh, the benefit of 3 percentage points in interest on delayed payment.

192. In keeping with our thrust to encourage voluntary compliance, the penal provisions for Service Tax are being rationalised. A key component of this strategy would be to treat less harshly those who have maintained truthful records but have fallen short of discharging their tax liability. Simultaneously, deliberate evaders with unrecorded business transactions will be dealt with more severely. Similar changes are being carried out in Central Excise and Customs laws. The details of the provisions are in the Finance Bill.

193. My proposals relating to service tax are estimated to result in net revenue gain of `4,000 crore for the year.

194. Many experts have argued that it will be desirable to tax services based on a small negative list, so that many untapped sectors are brought into the tax net. Such an approach will be very conducive for a nationwide GST. I propose to initiate an informed public debate on the subject to help us finalise the approach to GST.

195. Copies of notifications giving effect to the changes in Customs, Central Excise and Service Tax will be laid on the Table of the House in due course.

196. My proposals on direct taxes are estimated to result in a revenue loss of `11,500 crore for the year. Proposals relating to indirect taxes are estimated to result in a net revenue gain of `11,300 crore, leaving a net loss of `200 crore in the Budget.

197. As an emerging economy, with a voice on the global stage, India stands at the threshold of a decade which presents immense possibilities. We must not let the recent strains and tensions hold us back from converting these possibilities into realities. With oneness of heart, let us all build an India, which in not too distant a future, will enter the comity of developed nations.

Madam Speaker, with these words, I commend the Budget to the House.