“It makes certain statutory levies non-deductible from State PSUs’ income”

Chief Minister Jayalalithaa on Tuesday urged the Prime Minister Manmohan Singh to delete a clause in the Finance Bill 2013 that made certain statutory levies non-deductible from the income of State Public Sector Undertakings. She described the clause as extremely ‘retrograde and anti-federal.’

According to her, Clause 7 of the Finance Bill 2013 seeks to amend section 40 of the Income Tax Act and make any levy by a State government by way of privilege fee, licence fee, royalty etc., on State Public Sector Undertakings not deductible for the purpose of computation of income.

“I am dismayed to find that the Finance Bill 2013, introduced in the Lok Sabha along with the Union Budget for 2013-14, contains an extremely retrograde, anti-federal provision in Clause 7 of the Bill,” she said in a letter written to Dr. Singh.

She said the States had the powers to levy such fees, royalties etc. under Article 265 of the Constitution.

All such levies were legitimate statutory levies and as such were deductible from the income of the State Public Sector Undertakings under Section 37 of the Income Tax Act.

Clause 7 of the Finance Bill 2013 now seeks to make such statutory levies non-deductible from the income of State Public Sector Undertakings and thereby intends to boost the income of the Central government at the cost of legitimate tax and non-tax revenue of the State governments, she said in the letter.

“This amounts to an indirect taxation of the income of State governments and hence is violative of the spirit of Article 289 of the Constitution which exempts the property and income of a State from Union taxation. This provision is also discriminatory because this only subjects State PSUs to such non-deduction of State government levies, but not Central Public Sector Undertakings,” Ms. Jayalalithaa said.

The Chief Minister said, “Further, the clause as presently worded also gives very wide discretion to the Income Tax authorities to determine which levies will not be permitted for deduction and these powers can be exercised in an arbitrary manner which will lead to needless litigation.”

Expressing her dismay, she said the Ministry of Finance, instead of focussing on curbing tax evasion by a large number of private persons and increasing the tax base by such means, was attempting to act against the Constitutional scheme of distribution of taxation powers between the Centre and the States and to distort the federal polity of the country.

“Clearly this provision is ill-conceived and misguided and has no place in a federal polity like ours. I would, therefore, earnestly urge you to kindly ensure than an official amendment is moved to delete Clause 7 of the Finance Bill 2013 before the Finance Bill is enacted into Law in Parliament,” she added.

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