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The focus was on agriculture and the small taxpayer
On the corporate side, it was felt that some redressal had to be given to firms earning below Rs 1 crore profit before tax as they pay the highest effective tax rate of 24.29 per cent, even though the average corporate tax rate is 19.26 per cent. The medium-level companies with Rs 150-500 crore PBT pay the lowest tax rate, which increases a bit for those with PBT of over Rs 500 crore. The same was the case with excise duties, which have been rationalised to benefit small companies. The finance minister was keen to give them (smaller companies) relief as excise duties had not been adjusted for some time. So, the focus was on the small taxpayer or the aam aadmi.
One can argue that there was no need to make fundamental changes as things were working alright. But there was a need to correct some anomalies. One of these was that some sectors were out of the ambit of the minimum alternate tax (MAT). So, we have done away with exemptions under 10(A) and 10(B), which cover software parks, hardware parks, export-oriented units, and old (not new) special economic zones. Another anomaly was the possibility of old units splitting their operations and moving to a new SEZ to take advantage of tax breaks. This has been stopped by the decision to put SEZ rules into an Act. Similarly, the dividend distribution tax was dealt with. The corporate tax surcharge for firms earning below Rs 1 crore profits was removed as we found that the burden is more for them. These could be called rationalisation of taxes. At the same time, the finance minister wasn’t really afraid of losing revenues, as he gave incentives where required—like for in-house R&D by allowing 150 per cent deduction to continue for five more years till 2012.
(As told to Lola Nayar)