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Return to Main Page of Budget 2004-2005

Indian Budget 2004-05
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(July 8, 2004)


92. I shall now deal with my tax proposals.

93. Taxation is a key tool of fiscal policy. The NCMP has promised that "tax rates will be stable and conducive to growth, compliance and investment". Thanks to policies initiated in the 1990s, direct tax rates are now moderate and require only fine tuning from time to time. Indirect taxes have also been moderated through a calibrated reduction in customs and excise duties. The proportion of direct tax revenues to GDP has increased from 1.9 per cent in 1990-91 to 3.8 per cent in 2003-04. As expected, the proportion of indirect tax revenues to GDP has declined from 7.9 per cent in 1990-91, but the decline has been rather sharp with the proportion at 5.3 per cent in 2003-04. The weak spot is central excise. Excise revenues are stuck, rather stubbornly, at around 3.3 per cent of GDP. While reduction in excise duty rates partly accounts for this situation, the expansion of the manufacturing industry ought to have given us larger revenues.

94. Through my policies on taxation, I wish to signal that we remain committed to moderation and stability in tax rates; that we remain committed to increasing revenues from direct taxes and excise duties; and that we remain committed to expanding the service tax net because the services sector accounts for 51 per cent of GDP. I shall also use tax policies to provide incentives to certain kinds of investment and to influence certain kinds of behaviour in the market.

95. I am a votary of tax reforms but it would be unwise on my part to attempt to do tax reform in a hurried or piece-meal manner. Seven months from now there will be another Budget, and there will be an occasion to visit the subject of tax reform.

Direct taxes... Read full text

Indirect taxes... Read full text

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