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- By Parinda News Bureau, January 30, 2007, 12:30 IST
This budget we may lose some of the open ended tax exemptions, the finance minister, P Chidambaram has indicated.
The government is expected to target open-ended tax exemptions by stipulating a time period for their conclusion in the forthcoming Budget.
In an interview given to The Economic Times, finance minister P Chidambaram said there are many open ended exemptions,some of which the government is obliged to keep open for a certain period. Yet most of them will have to be phased out.
“Tax exemption is a complex problem. We are committed to reviewing all exemptions. That is why we have put them on our website. We want a healthy debate on exemptions. Every tax exemption has a strong constituency behind it. The question is which constituencies you can take on. We are looking at that. Our approach is simple: some tax exemptions must go. In any event, new ones must not get grafted to the tax code. Every new budget proposal from any constituency talks of an exemption. We have to resist giving new ones”, he said.
Mr Chidambaram admitted that the SEZ policy was one big exemption but they had argued against the tax exemptions in SEZs and lost the battle. 80 HHC, which gave an income tax break on export profits, is now back through SEZs. This exemption had been phased out. MAJOR tax exemptions to corporates cost the government Rs 57,852 crore in 2004-05. Corporates, for instance, enjoy two kinds of open-ended exemptions. One, where the exemption is perennial. Two, where the exemption is for a finite period but companies are free to claim it at any point of time. The tax deduction available to companies under a section in the Income Tax Act known as 80 G falls in the first category.
Companies can claim a tax deduction on donations to charitable trusts and institutions under this section. Similar tax breaks are given for donations to political parties under Section 80 GGB. The second category of open-ended exemptions include tax holiday available to infrastructure service providers under Section 80 IA of the Income Tax Act.
Companies that develop, operate and maintain infrastructure facilities can claim full deduction on the profits for the first ten years. Roads, water supply, port, airport, inland waterway, water treatment, irrigation, sanitation and sewerage and solid waste management feature in the list of beneficiary infrastructure facilities. The exemption has no termination date set for it, unlike in the case of investment in the power sector, where a developer cannot commence claiming the 80IA benefit after March 31, 2010.
Similarly, a deadline has been fixed for industrial parks as well. Tax breaks are also given under a Section known as 80 IB of the IT Act to companies engaged in the commercial production or refining of mineral oil anywhere in India. A full tax holiday is available for seven years, whenever it is commissioned.
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