India Budget Slashes Taxes, Cheers Business

By SONALI VERMA

NEW DELHI: Finance Minister P Chidambaram swept away two painful taxes levied on business and cut personal and corporate tax rates across the board in India's annual budget for 1997/98 (April-March), February 28.

But Chidambaram, presenting a business-friendly budget that was eagerly welcomed by stock markets, said he was unable to withdraw a controversial minimum 12.9 percent tax on profits that businessmen say has seriously hurt Indian industry.

"The economic rationale for MAT (minimum alternate tax) has, I am afraid, not been altered and I am unable to accept the request that the provision introduced last year be completely withdrawn," Chidambaram said.

But the tax would no longer be levied on exporters' profits, he said.

The finance minister said he was abolishing a 7.5 percent surcharge on corporate profits and a tax on income from dividends -- two longstanding business demands.

The government has so far taxed shareholders on dividend income, which is paid out of already-taxed profits. "I had in my last budget reduced the rate of surcharge from 15 percent to 7.5 percent and had expressed the hope that I would take a similar step in my next budget," Chidambaram said.

"I propose to abolish the balance surcharge on companies." He also lowered a tax on domestic firms' profits to 35 percent from 40 percent, and on foreign firms' profits to 48 percent from 55 percent.

He said the reduction in corporate taxes would "impart an added momentum to the growth process, create multiplier beneficial effects all around and also attract greater foreign investment."

The Bombay Stock Exchange's benchmark index surged after Chidambaram's announcements. The benchmark stocks index closed 178.20 points, or 5.13 percent, higher at 3,652.99 points in a special post-budget trading session.

Chidambaram said India's personal tax rates were among the highest of developing Asian nations, an important reason for widespread tax evasion.

The minister said he was cutting the maximum marginal rate of income tax to 30 percent from 40 percent. The three existing tax slab rates for personal income tax would now be slashed to 10, 20 and 30 percent from 15, 30 and 40 percent respectively.

"It is now widely accepted that moderate rates of taxation encourage savings, foster growth and motivate voluntary compliance," Chidambaram said.

The finance minister announced an amnesty plan under which Indians who declared their "black money" would be immune to income tax, wealth tax and foreign exchange penalties, irrespective of the source of the income. The money would be taxed at 30 percent.

He did not say when the amnesty would begin, but said it would end December 31, 1997.

Chidambaram also raised the standard deduction -- an amount deducted from an individual's gross salary to account for expenses -- to Rs 20,000 ($559) from Rs 15,000.

He said senior citizens whose annual income was under Rs 100,000 would be fully exempt from paying income tax, while those earning more than the amount would be taxed only on the portion of their income that exceeded Rs 100,000. (Reuter)

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