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FM finetuning farewell notes for tax exemptions
March, 08th 2007

Finance minister P Chidambaram on Wednesday indicated that most tax exemptions would have to go, except those given to promote research and development and knowledge areas and those targeted at the welfare of senior citizens.

If we closely analyse every word of the Budget, one would find that every announcement revolves around some exemption or the other. Every exemption, as the Prime Minister has said, will be examined. Every exemption that has to be removed will be removed, those that cannot be removed right now will be snipped away, the FM said at a post-Budget meeting with CII on Wednesday.

The basis for the argument is that all exemptions would have to eventually make way for a tax structure that will allow tax breaks only for the most deserving areas such as R&D, some frontier knowledge areas and vulnerable sections of the society, the minister said.

To make agro-based industries more competitive and provide a fillip to agriculture, the minister said, I am willing to look at further fiscal incentives on the Customs and excise side.

The minister also seemed to be in favour of decontrolling the sugar industry and elaborated that it was a complex policy issue but that he would urge the agricultural ministry to decontrol sugar.

The government has estimated a revenue loss of Rs 2,35,191 crore on account of tax exemptions in 2006-07 (about 50% of all tax collections), against a loss of Rs 2,06,700 crore in the previous fiscal.

With reference to venture capital funds, the FM said: By definition, venture capital is high-risk capital, which has been granted tax exemptions. The pass through, however should be available only to those sectors that require high-risk capital, and these areas have been identified by the government.

On inflation, the minister said there was no reason to believe that it would not moderate. Fiscal and monetary measures along with measures to take care of supply-side constraints have been taken to tackle the inflation rate, which touched a high of 6.73% in early February.

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