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Need fourth slab in income tax rates
March, 10th 2015

Former Finance Minister P. Chidambaram said there was a need for a fourth slab in the personal income tax rates.

“I introduced three tax slabs in 1997, in what was called the dream budget. I feel there is a need for a fourth slab, since the liberalisation is giving huge rise in income for certain people,” Mr. Chidambaram said.

He was addressing a session on Union Budget 2015-16, organised by the Loyola Institute of Business Administration (LIBA).

Mr. Chidambaram said the government’s acceptance of the 14th Finance Commission report, which increased the States’ share of divisible central taxes to 42 per cent from 32 per cent, did not mean States were going to get more money. “This calls for another long debate,” he added.

He also defended the Minimum Alternate Tax (MAT). It was introduced to force companies which did not pay tax due to availability of concessions, exemptions and deductions to pay tax.

“The companies make profit as per profit and loss account but do not pay tax due to concessions. So, they are made to pay a nominal amount as tax. Companies making profit pay tax, and MAT could be offset in case of a future loss. It is only a form of advance tax. MAT is a correct tax. But how much percentage to be charged can be debatable,” he said.

Citing the example of Starbucks, which makes huge profits in the U.K., but does not pay tax, Mr. Chidambaram said, “There are firms which make big profits using the country’s potential and concessions given by government. Those firms should be made to tax and that is the logic behind MAT.”

Mr. Chidambaram reiterated that the Modi government’s first full budget had failed the fiscal and financial stability test, the test of equity, and the test of rising inequality. “Some aspects of the budget are good, and I appreciate the Finance Minister Arun Jaitley for it.”

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