Finance Bill 2005-06: Key Highlights

The Finance Bill 2005-06, presented to the Indian Parliament, aimed to further the government’s agenda of economic growth, fiscal consolidation, and social equity. It incorporated changes across various sectors, primarily focusing on taxation, infrastructure development, and social welfare schemes.

Direct Taxes

A significant aspect of the bill was its focus on simplifying and rationalizing the direct tax structure. Corporate tax rates remained largely unchanged. However, significant emphasis was placed on widening the tax base. Efforts were made to bring more individuals and entities under the tax net through improved enforcement and compliance mechanisms. Changes were introduced to address transfer pricing issues and prevent tax avoidance by multinational corporations.

Individual income tax slabs were revised to provide some relief to taxpayers, especially those in the lower and middle-income brackets. Deductions and exemptions were fine-tuned to encourage savings and investment in specific areas, such as infrastructure bonds and long-term savings schemes. The bill also addressed the taxation of fringe benefits, introducing a Fringe Benefit Tax (FBT) levied on employers for the value of benefits provided to employees.

Indirect Taxes

In the realm of indirect taxes, the Finance Bill continued the gradual move towards a unified Goods and Services Tax (GST). While GST was still several years away, the bill made incremental changes to excise duties and service taxes to harmonize the tax structure across different sectors. Excise duties were rationalized on several goods to reduce distortions and promote efficiency in manufacturing. Service tax rates were increased, and the scope of services subject to tax was broadened to cover more sectors.

Customs duties were also revised, with a general trend towards lower tariff rates to facilitate trade and reduce input costs for domestic industries. Special emphasis was placed on reducing customs duties on inputs used in export-oriented industries to enhance their competitiveness in the global market.

Infrastructure and Social Sector

Recognizing the critical role of infrastructure in economic development, the Finance Bill provided incentives for investment in infrastructure projects. Tax holidays and other fiscal benefits were offered to companies engaged in the development of roads, ports, airports, and power projects. The bill also focused on promoting public-private partnerships (PPPs) in infrastructure development to leverage private sector expertise and capital.

Significant allocations were made towards social sector schemes aimed at improving healthcare, education, and rural development. The National Rural Employment Guarantee Act (NREGA), a flagship program aimed at providing employment to rural households, received substantial funding. The bill also included provisions for strengthening healthcare infrastructure and improving access to education, particularly for marginalized communities.

Overall Impact

The Finance Bill 2005-06 represented a continuation of the government’s reform agenda, aiming to foster economic growth while addressing social and fiscal challenges. While some provisions, like the FBT, were met with resistance from certain sectors, the bill generally received positive feedback for its focus on simplification, rationalization, and investment in key areas. It set the stage for further reforms in the years to come, paving the way for a more robust and inclusive economy.