The bonanza for individual income-tax payers in Budget 2008 will not impact direct tax revenues, says R Prasad, chairman, Central Board of Direct Taxes.

These tax-payers will come back into the tax net after the Sixth Pay Commission award is implemented, Prasad tells Business Standard. Excerpts:

How will you achieve the Rs 3,65,000-crore (Rs 3,650 billion) target for direct tax collections in 2008-09?

The Sixth Pay Commission will raise salaries of central government and public sector employees. It will also have a positive impact on the salaries of state government employees.

The economy is also doing well. The direct tax collection target for 2008-09 is only a 20 per cent increase (over last year) and will be achieved.

What was the thinking behind raising exemption limit and slabs?

India has seen maximum growth in salaries among Asian countries in the last three years. As a result, they were in the second highest or the highest income-tax bracket.

Inflation taken into account, the highest bracket started on a very low base. So the exemption limit was raised to Rs 1,50,000 and the slabs were changed, benefiting tax-payers in lower as well as higher strata.

Second, we have got bumper revenues in the last three years. If the revenues had not come, the government would not have thought of changing the slabs. It is, in a way, the government thanking the tax-payer.

Will the commodities transaction tax contribute significantly to the tax kitty?

Commodity transactions will attract taxes on a par with securities transactions. Revenues will be substantial as turnover in the 23 commodity exchanges is much more than the combined securities transactions on both BSE and NSE. CTT will contribute at least Rs 5,000 crore (Rs 50 billion) in the first year.

Will the change in the definition of 'charitable purpose' impact trusts?

Many maritime boards, port trusts, marketing committees and technical educational institutions were claiming to be charitable trusts to get tax exemption.

This argument was also upheld by tribunals. The amendment to Section 2 (15) of the Income Tax Act will explain that commercial activity will not be covered under 'charitable purpose'. Section 25 (under Companies Act) undertakings like state road transport corporations will also come under the tax net after the amendment.

Income-tax incentives to STPIs and EoUs are ending in March 2009. Will they be extended?

Tax incentives were given to nurture the software industry. They have now come of age and have established themselves. How long would you like to give them tax exemptions?

This is a question which all of us should ask ourselves. However, there is enough time till March 2009 to decide on the scheme. The thinking in the government is that all exemptions will slowly be phased out. Only when exemptions are phased out will corporation tax rates come down.

Effective corporation tax rate is around 20 per cent and it is a very low rate. The effective tax rate on courier and security agencies is 37 per cent whereas it is only 6 per cent on software companies. If exemptions go, the rate will come down for those who are paying a high tax rate. There needs to be more equity in the system.