P. Chidambaram holds the distinction of delivering nine budgets. Second only to Morarji Desai's ten.
Market-gazers regarded him highly. This Veshti-clad Harvard alumni took oath on the constitution of India and not on God. His first budget speech in 1996 was presented with almost nil opposition. But the second one was so popular that the masses referred to it as the ‘dream budget’.
Similar to the term of Black Budget, the Dream Budget too is a metaphor offered by the media.
A major portion of reforms in this budget were aimed at easing income-taxes, pitching for a major revision in income-tax slabs, and offering cheer to the stock markets via dividend-tax reforms.
Stock markets were obviously ecstatic considering corporate surcharge was to be done away with.
Chidambaram said in the dream budget, “Turning to corporate taxes, I had in my last budget reduced the rate of surcharge from 15 per cent to 7.5 per cent and had expressed the hope that I would take a similar step in my next budget. I propose to abolish the balance surcharge on companies.”
NRIs cheered for this budget, after all Chidambaram had opened the markets for foreign institutional investments in Indian companies by up to 30%.
Speaking on dividends, he said, “Some companies distribute exorbitant dividends. Ideally, they should retain bulk of their profits and plough them into fresh investments. I intend to reward companies who invest in future growth. Hence, I propose to levy a tax on distributed profits at the moderate rate of 10 per cent on the amount so distributed. This tax shall be incidence on the company and shall not be passed on the shareholder.”
The ultimate however was on tax assessment of slabs. Something not many Finance Ministers have thought about:
“It is inexplicable that in a country of over 900 million people, only 12 million people are assessed to income-tax and, what is worse, only about 12,000 assesses are in the tax bracket of income above Rs. 10 lakhs. I intend to make a beginning in widening the tax net by an amendment of Section 139 of the income tax Act. My proposal is that residents of large metropolitan cities who satisfy any of the two following economic criteria, namely, ownership of a four-wheeler vehicle, occupation of immovable property meeting certain prescribed criteria, ownership of a telephone and foreign travel in the previous year, should normally fall within the taxable slabs and should voluntarily file their tax returns. I appeal to them to cooperate in our endeavour. If anyone fails to do so, the income-tax Department would serve upon him a notice obliging him to file his return so that taxes, if due from him could be collected. Those who live in apparent comfort must have the satisfaction of finding their names in the records of the income-tax Department.”
“Members may recall that, last July, I had reduced the income-tax rate for the first income slab from 20 per cent to 15 per cent. It was, I believe, a step in the right direction. If we look at comparative income-tax slabs in other developing Asian countries, it will be evident that tax rates in India are still high and constitute an important reason for tax evasion. It is now widely accepted that moderate rates of taxation encourage savings, foster growth and motivate voluntary compliance. I have received wise counsel from many Hon’ble Members. I have, therefore, decided to lower the rates of personal income-tax across-the-board in a significant manner. The current rates of 15, 30 and 40 per cent are being replaced by the new rates of 10, 20 and 30 per cent. The rate will be 10 per cent in the first slab of Rs. 40,000 to Rs. 60,000, and 20 per cent in the slab of Rs. 60,000 to Rs. 1,50,000 and 30 per cent for all income above Rs. 1,50,000.”
“Salaried persons deserve some relief. I, therefore, propose to increase the limit of standard deduction to Rs. 20,000, which will, henceforth, apply uniformly to all salaried taxpayers. An employee drawing a salary of Rs. 75,000 per annum and contributing 10 per cent thereof to the provident fund would have to pay no tax at all.”
The exact impact of the dream budget is yet to be assessed. However the Dream Budget remained only a dream and could not take off because the Deve Gowda government lost its mandate shortly after the budget. With the Asian crisis sparking a huge drain, the dream budget could never be revived.