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Budget
Speech 2002 - 2003
COMMERCIAL TAXES
113.
In the White Paper
placed on the Table of this House in August 2001, it was mentioned that revenue
from Commercial Taxes constitutes 66% of the State's own total revenues. In the
year 2001-2002, the recession in the economy has affected the buoyancy of this
source of revenue. Reversal of the slow down in the immediate future looks
improbable and the resultant increase of anticipated deficit levels is creating
difficulties.
114.
It was mentioned in the last Budget Speech that this Government has
undertaken a comprehensive examination of the various issues in the
implementation of VAT. As per current indications the implementation of VAT will
be with effect from 1.4.2003 throughout the country. Based on the broad
guidelines finalised by the Empowered Committee of State Finance Ministers, the
Commissionerate of Commercial Taxes have put on the Departmental website a
"Discussion Paper" on the implementation of VAT, inviting suggestions.
A comprehensive proposal for computerisation of the Department is under the
active consideration of the Government, since full computerisation with adequate
data transmission facilities is a must for effective implementation of VAT.
115.
The taxation proposals for the year 2002-2003 therefore have to take into
account the need for adequate mobilisation of revenue in the face of a fall in
the buoyancy due to economic slow down and also the need to reach in this
financial year an intermediate stage before possible full transition to VAT from
next year. The various suggestions received from trade and industry including
those during the pre-budget meeting held on 18.1.2002 have been viewed in this
context. I now turn to the details of the proposals.
116.
Under the VAT system, the number of tax rates would be only three, apart
from a limited list of exempted goods and
also commodities which would be outside the purview of VAT and the set-off
principle. The rates envisaged are 1%, 4% and a Revenue Neutral Rate (RNR) with
a provision for a Special Additional Tax (SAT) on a limited number of items. It
has therefore become necessary to review the exempted list of commodities, and
also to prepare
for transition within a year from the present 8% slab to a revenue neutral rate
which would be 12% or higher. In the process of restructuring the Schedules and
Parts of the TNGST, the grouping of the entries in the TNGST Parts and Schedules
has been reviewed and the present number of entries which exceed 450 in number
will stand reduced to less than 300.
117.
It is therefore proposed to dismantle the 8% rate and transport the
present commodities in this Part to 4%, 10% and 12% Parts. A separate Schedule
will be incorporated to the TNGST Act, 1959, wherein all petroleum products,
IMFL, Foreign liquor, sugarcane, pan masala without tobacco, molasses, and all
imported items whose local counterparts are in the 12% and 16% Parts will find
place. There will be in addition the 1% rate schedule for bullion and worn out
or beaten jewellery.
118.
In order to widen the tax base, it is proposed to review the exemption
for commodities like rice, wheat, jaggery, pepper, pulses and grams which are
being taxed in a number of States. A nominal rate of 2% is proposed to be levied
on rice and wheat at the point of first sale by the dealer. Rice and wheat
supplied in PDS will not be taxed. Jaggery, pepper, pulses and grams will be
taxed at 4%. Rice, wheat, pulses and grams will not be liable for Additional
Sales Tax (AST). Inter-State sales tax rate of copra will be raised from 1% to
2%. Siddha and Unani drugs now exempt will be taxed on par with
Ayurvedic and Homoeopathy drugs at 4%.
119.
As a part of the review of the entries in the present exempted and the 4%
Parts, Gum benzoin (sambrani) and instant sambrani will be taxed at the rate of
camphor and agarbathi at 4%. Stitched handkerchiefs will be taxed at 4%.
Exemption will continue in respect of footwear with the maximum retail price
(MRP) of less than rupees one hundred; but straps of footwear sold by dealers
whose turnover exceeds rupees three lakhs per annum will be taxed at footwear
rates of 10%. While solar cookers, municipal waste conversion devices for
producing energy and energy saving Chulas will be exempt, other renewable energy
conservation devices will be taxed at 4%. Cloth rags will be grouped with cotton
waste and other wastes and taxed at 4%. Cottonseed husk will be grouped with
paddy husk etc. and exempted. Neem oil cake, a soil fungicide will be exempted.
It is also proposed to exempt fish net and rubber play balloons, now taxed at
4%. Articles and equipment for gymnastics including health fitness equipment,
non-stick utensils and television antenna now being taxed at 4% will be taxed at
12%. Desiccated coconut will be taxed at 4%.
120.
In the process of dismantling the 8% Part, it is proposed to reduce the
tax on bamboos, bottle caps, unbranded toffees and confectionery, unbranded
foods including unbranded cakes and icecreams, cotton yarn waste, handicraft
articles, jute bags which are laminated, palm fatty acids, bleach liquids, HDPE
and PP woven strips and woven fabrics, umbrellas, tin containers, light roofing
sheets and unregistered branded biscuits to 4%. Branded and packed fresh
vegetables and fruits and unbranded butter will be exempt. Metallic wares other
than domestic utensils, pressure and heat resistance cookware, fans, electronic
finished goods, dumpers, earth moving machinery will be moved to the 12% Part,
while the balance entries in the 8% Part will be moved to 10% Part. Status quo
will remain in the case of tea, coffee and rubber by notification since the
plantation industry is under stress.
121.
In this regard, mention has to be made about the regrouping attempt in
respect of electric and electronic goods. While computers, computer peripherals,
software and notified electronic items would be taxed at 4%, all electric and
electronic components and accessories including shunt and power capacitors are
being broad banded for taxation at 10%. Other electrical and electronic goods
will be taxable at 12%. However, in respect of telecommunication equipment,
supplies of notified items to Corporations which were erstwhile Departments of
Government of India will be taxable at 4%.
122.
While reviewing the items currently taxed at 12%, it has been decided to
do away with the condition for taxing at a differential rate
aerated waters including soft drinks on an MRP criterion. Branded fruit
juices and fruit drinks will continue to be taxed at 12%, while aerated drinks
which are branded and registered will be charged at 16% along with other branded
and registered foods. Branded and unregistered chips will be taxed at 10%.
123.
In the process of regrouping of automobile and accessories, the rate on
spark plugs which is now 20% will stand reduced to 12%. Asbestos cement sheets
will be taxed at 12% as against the existing 16%. Imported goods whose
indigenous counterparts are taxable at 12% and 16% will be taxable at 20%.
124.
A sizeable part of the revenue of the State originates from the tax on
petroleum products and in the wake of the proposed dismantling of the APM
regime, the implications will have to be suitably responded to.
In
respect of hotels, an additional compounding slab rate of Rs.12,000 per annum is
being put in place for turnovers between Rs.10 lakhs to Rs.25 lakhs.
125.
This Government has taken several initiatives to revive industry
particularly the small industry which, due to the wrong policy adopted by the
then Government between 1996 and 2001, is in a state of turbulence. It is
proposed to reinforce the steps taken by this Government and extend certain
further concessions to industry so that growth and concomitant revenue rise is
made possible.
The
Government proposes to permit a concessional sales tax rate of 4% for the
supplies of goods (other than motor spirit, diesel and cement) by dealers in
this State to the State Government Departments of Tamil Nadu, the TNEB, NLC,
TWAD, Metro Water, Medical Services Corporation, and the State Transport
Corporations. This concession will also be available to the turnkey contract
supplies to TNEB, TWAD and Metro Water on the production of a prescribed
declaration. The rate for Molasses is proposed to be lowered to 20% to notified
molasses-based pharmaceutical and chemical industrial units in the State,
subject to the tendering of a suitable declaration by the units. At the same
time, it is also proposed to exempt M/s.Sago Serve, Salem from the levy of AST,
and adjust the sales tax payable by them to 4%. Purchase tax to the extent of 7%
on lube base oil will be permitted to be set off by oil companies to enable
increased capacity utilization of CPCL and raise revenue to the State.
Assistance to rubber industry is proposed by permitting the adjustment of the
CST paid on natural rubber against the purchase tax payable under TNGST.
Paraffin wax purchased by SIDCO will be taxed at 4% to benefit small units.
Electrical control panels will be eligible for a concessional rate of 3% as
capital goods.
126.
It is considered appropriate to introduce the concept of set-off as an
experimental measure to understand the implications under VAT. To start with, it is proposed to permit
full set-off of the tax paid on inputs (other
than fuel), components and spares against Form-XVII against the TNGST and CST
payable with effect from the date of notification for electrical and electronic
goods taxable at 12%, handmade soaps taxable at 12%, machine made matches and
paper, both to be taxed at 10%. It is
also clarified that no set-off will be allowed in respect of consignment
transfers, and the set-off will be upto 50% of the output tax paid in respect of
CST only if the full CST rate of 4% is paid. In case of all concessional CST or
TNGST transactions, the facility of set-off will not be available. With
a view to providing relief for printing industry in the State, set-off of taxes
paid in the State directly to the dealer at the point of first sale in respect
of paper and ink will be permitted from the date of notification. In order to
minimise disputes relating to works contracts and sales in Tamil Nadu in respect
of printing materials, it is proposed to provide for a compounding option of 3%
of the value of the transaction irrespective of whether it is a sale or works
contract. No set-off would be available for these compounded transactions. It is
estimated that the revenue loss to the State due to the extension of the set-off
facility will be of the order of Rs.21 crores per annum. It is our fervent hope
that industry will come forward to share the benefit of the concessions with the
consumers. Any instances of misuse of the facility by raising false claims or
lack of positive developments will lead to the concession being withdrawn.
127.
In order to augment and protect revenue, a number of statutory and
procedural measures are proposed. It is proposed to levy a tax on resale of all
commodities excluding rice, wheat, pulses and grams, IMFL, petroleum products
and other declared goods. The tax rate will be nominal at 1% and will be payable
by second and subsequent sellers. This step is being taken both for augmenting
revenue and as a preparatory measure to VAT when all stages of a sale will
attract tax. However, dealers with a turnover not exceeding Rs.10 lakhs per
annum will not be liable to collect or remit the resale tax.
128.
Entry Tax was levied with effect from 1.12.2001 in respect of a few
items. It is proposed to include in the list of goods liable for Entry Tax the
following additional items:
Ø
Motor spirit
Ø
Lubricating oils, greases and lube
base oil
Ø
Bitumen
Ø
Aluminium
Ø
Asbestos cement sheets
Ø
HDPE granules and PVC resins and
PVC pipes
Ø
HDPE/PP woven fabrics
Ø
Marbles, granites, ceramic tiles
Ø
Potassium chlorate, LAB, soda ash,
caustic soda and chlorine
Ø
Sanitary wares
Ø
Newsprint, paper and paperboards
excluding coated paper, tissue paper, MICR, electrical grade paper, glassine
file boards
Ø
Wheat products
Ø
Iron and steel
Ø
Compressors, parts and accessories
of airconditioners and refrigerators
Ø
Tobacco and tobacco products
excluding beedis
Entry Tax will be
levied at the rates prescribed in the TNGST for all items except tobacco and
tobacco products which will be charged at 10%. The Entry Tax on LSHS for
notified Independent Power Producers will be reduced to 3% for a period of one
year from the date indicated in the notification.
129.
The steep increases in the price of cement from time to time have been a
matter of serious concern for the Government and the general public. The Government has now decided to levy a
sales tax of 24% for OPC and PPC cement exceeding selling price of Rs.145 and
Rs.135 per bag respectively. The above selling price is inclusive of sales tax.
Similarly the tax on second and subsequent sales for the above categories of
cement will be 5%. The rate of tax below these selling prices will be the
present rate of 16% for first sale and 1% for second and subsequent sales. The
entry tax on cement including white and refractory cement will be removed. It is
hoped that all these measures would ensure availability of cement at reasonable
prices.
130.
There is considerable avoidance of tax in the case of jewellery and
precious stone transactions and necessary corrective measure will be initiated. The Luxury Tax Act will also be amended
to levy a nominal luxury tax of 1% on monthly accretions of stock of silk sarees
whose purchase value exceeds Rs.3,000 per saree. The scope of the Advertisement
Tax Act will be expanded.
131.
In order to provide better quality of life to the people and also better
quality of operative environment to business and industry, infrastructure
development is of critical importance. To meet the rising requirements in this
critical sector, the
Government has decided to levy an infrastructure surcharge of 5% on sales tax
paid under the TNGST Act on all items except rice, wheat, kerosene, LPG and
Declared Goods. This surcharge will
also not be levied on IMFL because of the recent enhancement in the sales tax on
these items from 50% to 55%. The
Government hopes to raise around Rs.230 crores per annum through this measure.
132.
It is estimated that in net, the levies and concessions inclusive of the
surcharge are likely to augment the revenue of Government by about Rs.690 crores
per annum.
133.
I now turn to the vexatious issue of arrears of sales tax. Reports have
been carried in the media as though the deficit of Government would have been
bridged, had sales tax arrears been collected. I have to clarify that almost 90%
of the arrears of sales tax are under the broad categories of (a) those under
litigation in various fora or pending elimination as a follow up to orders of
appellate fora and (b) those which are covered by deferral/instalment payment
concessions, proposals for write off, waiver, action under the Central/State
Revenue Recovery Act etc. Arrears rose almost threefold between 1996-1997 and
1999-2000, and part of the reason was the move to complete pending assessments
by a deadline, resulting in large scale best of judgment assessments and
consequent litigation. This
Government will take steps to expedite decisions in legal fora and bring in
necessary procedural changes. The services of investigating agencies will be
availed of to trace dealers who are now reported as untraceable so that they can
be made liable for actions. Statutory changes to ensure stiffer penalties and
more effective administration including a check on best of judgment assessments
will be brought by amendments to the respective Acts.
134.
The Government will make amendments to the TNGST Act, 1959 to revise the
fees payable for registration and the dates for renewal. For the year 2002-2003,
the dates will be 30th April without fine and 31st
August with fine.
135.
To meet a long voiced request of works contractors, a centralised circle
for deducting tax at source (TDS) will be started at Chennai this year on an
experimental basis, and if found satisfactory, it will be extended throughout
the State.
136.
The
Government also proposes to introduce a 'Samadhan Scheme 2002' for a period of
three months and also set up for a limited period a 'Settlement Commission' to
deal with specified categories of arrears. The Samadhan Scheme will require the
dealer to withdraw the appeal on Samadhan and all pre-deposits against the
disputed amount will be given credit.
137.
The Settlement Commission will deal with arrears of taxes of dealers who
have stopped business prior to 1.4.1995 without appeal pending on the 28.2.2002,
arrears of lottery dealers prior to 1.4.1996, disputes relating to autonomous
Corporations/ Boards of the Government of Tamil Nadu, Public Sector Oil
Companies of Government of India including Chennai Petroleum Company Ltd. (CPCL)
on the notified date, and pending requests of waiver of tax for periods prior to
1.4.1999 and not on appeal on 28.2.2002. These
items will not form part of the Samadhan Scheme.
138.
The
Government has reviewed the present dispensation for self-assessment.
With effect from the year 1999 - 2000, the previous Government had permitted
self-assessment upto a turnover of Rs. one crore with the only condition that
assesses of turnover exceeding Rs.20 lakhs have to obtain a Certificate from a
Chartered Accountant. A study of the self-assessment schemes of other States and
the representations received in respect of certification have led to a decision
to revamp the self-assessment scheme. With effect from the assessment year
2001-2002, the facility of self-assessment will be extended to only dealers who
satisfy certain compliance criteria, and the certification by a Chartered
Accountant or a Cost Accountant will be necessary only if the turnover exceeds
Rs.40 lakhs per annum. The scope of the self-assessment will be extended to
dealers having an annual turnover upto Rs.10 crores subject to fulfilment of
certain additional criteria, including 15% increase in tax paid over the
previous year. It will also be deemed that dealers who do not file their annual
returns by 31st October have not opted for self-assessment, and
regular assessments will be done in their cases.
139.
It is also proposed to clear the backlog of back-year assessments upto
the year 1998-1999 in the case of assessees. All uncontested back-year
assessments upto 1998-1999 will be completed without check of accounts if a
dealer has submitted all returns, paid tax as per returns, and files all
remaining declaration/ certificates to claim concession before 30.9.2002. In
case of dealers who are unable to produce 'C' / 'D' Form, a 2% condonation fee
may be paid over and above the prescribed CST rate and alternate proof required
by the department submitted.
140.
In the case of non-assessees who have not filed returns and file annual
returns upto and inclusive of assessment year 2000-2001, a special dispensation
will be made to file the annual return by 30.9.2002. In case the return is not
filed by that date, after the issue of such notice to file the return, the
registration will be cancelled apart from such measures as are considered
necessary.
141.
We invite the dealer community to avail of this opportunity to set at
rest long pending issues and at the same time to contribute to the revenues of
Government. This Government intends to discriminate between compliant dealers
and non-compliant dealers appropriately, encouraging the former and discouraging
the latter.
142.
In the Central Budget, certain changes to the Central Sales Tax Act have
been proposed. Declaration Forms will become compulsory on enactment.
Necessary alterations to notifications will be made thereafter.
143.
There has been a persistent demand from consumers of Indian Made Foreign
Liquor that they do not find a suitable place to sit and drink.
It has therefore been decided to permit bars in the IMFL retail shops in
Corporations, Municipalities and Town Panchayats by levying a license fee of
Rs.3 lakh, Rs.2 lakh, and Rs.1 lakh respectively.
144.
The cheap liquor scheme was introduced with effect from 1.1.2002 with a
view to preventing the distillation and consumption of illicit liquor which took
many lives, especially in the rural areas.
Our experience in the last 3 months has shown that the objectives for
which the scheme was introduced have not been fulfilled.
This scheme has only resulted in a sharp reduction in the State’s
revenue, which in the present precarious financial position, the State can
ill-afford. There have been
widespread representations from various quarters to do away with the scheme.
The
Government has therefore decided to discontinue the sale of cheap liquor with
effect from 14th April 2002.
The two weeks time is required to get over the procedural difficulties in
effecting the changeover. The
Government reiterates its resolve to continue its drive against illicit
distillation.
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