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Return to Main Page of Budget 2006-2007

Indian Budget 2006-07- Full Text
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(Feb 28, 2006)


118. Mr. Speaker, I shall now present my tax proposals. In the UPA Government’s first Budget, and more so in the second, I had attempted significant tax reforms. The results are encouraging. In 2004-05, gross tax revenues (provisional actuals) increased by 19.9 per cent over the actuals of the previous year and, according to Revised Estimates, in 2005-06, they are expected to increase by 21.4 per cent over the provisional actuals of the previous year. These figures confirm our belief that we should keep our tax rates moderate and stable.



Modernizing Tax Administration

173. I am glad to inform the House that technology is being increasingly employed to modernize tax administration. The Departments of Income Tax and Customs and Central Excise will undergo Business Process Reengineering (BPR). Nationwide networks will connect 745 income tax offices in 510 cities and 550 customs and central excise offices in 245 cities, creating national databases. National data centres, data warehousing facilities and disaster recovery sites are being set up. Jurisdiction-free filing of returns, online tracking of status of accounts and refunds of income tax will be possible. Introduction of a risk management system and Electronic Data Interchange (EDI) in the Customs Department will reduce dwell time for cargo. E-payments of customs and excise duties will be possible. Both Departments will have fully computerised networks by end 2006.

174. Our Government’s two Budgets have seen many innovations – the Gender Budget, the Outcome Budget etc. Today, I place before the House another innovation – a statement on revenue foregone, known worldwide as tax expenditure statement. This statement captures the departures from the normal tax regime. This exercise is a first attempt that will be fine tuned in the years to come.


175. The House is aware that most States have implemented VAT with effect from April 1, 2005, and the unanimous opinion is that VAT has been a resounding success. I hope that the non-VAT States will soon join the mainstream, because the next stage of reform depends on all States implementing VAT. The Empowered Committee of State Finance Ministers has recommended that Central Sales Tax (CST) be phased out, and have requested the Centre to compensate them for the expected loss of revenue. Government has proposed that the loss of revenue may be compensated through monetary and non-monetary measures which, taken together, will ensure that the States’ revenues remain buoyant. Once the Empowered Committee and the Government reach an agreement, I shall return to the House with firm proposals, including legislative changes and a supplementary demand.

176. In the meanwhile, there is an urgent matter connected with CST and VAT which has to be attended to. It has become imperative to moderate the price of Liquified Petroleum Gas (LPG) for domestic use. States are taxing LPG (domestic) at high rates. They should also bear a portion of the burden of high prices of petroleum products. Hence, in order to moderate the price of LPG (domestic), I propose to include LPG (domestic) in the list of ‘declared goods’ under the CST Act.

177. My tax proposals on direct taxes are estimated to yield a gain of about Rs.4,000 crore. On the indirect taxes side, the gain is estimated at Rs.2,000 crore.

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