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> Policies> economic survey 2000-01
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Economic Survey 2000-2001
[Review of Developments]
Fiscal developments
Tax reforms
1.55 The thrust of the direct tax proposals in the Budget was to retain stability in tax rates and widen the tax base. A new regime for venture capital funds (VCFs), which allows complete pass through status, was put in place for stimulating the growth of knowledge based industries. Provisions relating to amalgamations, demergers and slump sales have been further rationalised to provide tax-neutrality of corporate restructuring. Minimum Alternate Tax (MAT) is to be charged at 7.5 per cent of the "book profits" by all companies as determined under the Companies Act.
1.56 All tax concessions relating to earnings in foreign exchange are being phased out in a five-year period. With a view to expand the tax base, the "one-by-six" criteria introduced for identifying potential tax payers was extended to 79 more cities (from 54 cities) having a population of 2 lakh or more, as per the 1991 Census.
1.57 On the indirect tax front, the process of reduction in the dispersal, rationalisation and simplification of duty rates was carried forward to reduce the transaction and compliance costs. The system of central excise was overhauled with the introduction of a uniform Central Value Added Tax (CENVAT) of 16 per cent ad valorem on all manufactured goods with few exceptions. This will also encourage the States/Union Territories to implement their agreed programme for converting their sales taxes into VAT by April 1, 2002. In addition to CENVAT, three rates of special excise of 8 per cent, 16 per cent and 24 per cent respectively have been prescribed. These apply to certain specified goods like aerated water, tobacco products, motor vehicles, cosmetics etc. Rules and procedures for availing of CENVAT credit have been made short, simple and transparent. All inputs (except high-speed diesel and motor spirit) and all capital goods are eligible for input tax credit. Also, all finished goods (except matches) have been brought under the CENVAT credit scheme. The basis for payment of excise was changed to "transaction value" instead of "deemed wholesale price".
1.58 In the area of customs duty, the objective has been to reduce the high levels of tariffs gradually, so as to reduce the cost of production and improve the competitiveness of the user industry while allowing reasonable time to the domestic industry to adjust against competition from imports.
1.59 The move towards Asian levels of tariffs was reassured with peak protective customs tariff rate scaled down from 40 per cent to 35 per cent ad valorem and reducing the existing five major ad valorem rates of basic customs duty to 4 ad valorem rates viz. 5 per cent, 15 per cent, 25 per cent and 35 per cent. Several consumer goods and a large number of agricultural products were placed on the free list for imports effective from April 1, 2000. These goods are subject to the peak customs tariff rate of 35 per cent plus surcharge. The basic customs duties on crude petroleum and petroleum products were reduced in the Budget and were further scaled down to 10 per cent and 20 per cent respectively during the course of the year consequent to the rise in international oil prices.
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