Mantra for the Budget should be growth
The overall thrust of our reforms should be on measures to stimulate demand, measures for encouraging private investment and capital formation and reduction in taxes to encourage consumer spending, says FICCI president, Dr AC Muthiah.india Updated: Feb 21, 2003 18:31 IST
While formulating the Budget proposals, the Government should take into consideration both the external and internal factors. In spite of the fact that the external factors are slightly bleak but with strong internal base and strong fundamentals of the economy, the Government should take steps that will accelerate growth and boost it to six per cent now and more later.
The mantra for the Budget should be growth, growth and growth only. The overall thrust of our reforms should be on measures to stimulate demand, measures for encouraging private investment and capital formation, incentives to boost capital market and reduction in taxes to encourage consumer spending.
In order to contain mounting fiscal deficit and control expenditure, the government must enact Fiscal Responsibility Act without diluting the same as recommended by the in-house Committee.
On tax reforms, there is a need to instill some essential attributes in the system. These include simplicity, stability, equity, efficiency, neutrality, flexibility, progressivity, acceptability and revenue elasticity. The philosophy and principle of moderate tax rates, better compliance and widening the tax base must continue. The Government must frame Long Term Fiscal Policy (LTFP) for five years.
On the personal taxation, there is a need for increase in the basic exemption limit, restructuring of existing slabs, uniformity in the standard deduction for all assessees irrespective of their gross salary and continuation of benefit provided under Section 88 and the existing deduction of Rs 1,50,000 as provided for housing loan to provide fillip to the construction industry.
It is also important that the existing status of "Resident but not Ordinarily Resident" should continue under the Income Tax Act.
There is a need to widen the tax base and for the same, to tax the rural rich and bring all services in the tax net.
On corporate taxation, the Government should reduce Corporate Tax rate from 35 to 30 per cent, re-introduce Investment Allowance and abolish Minimum Alternative Tax (MAT). Existing incentives under Section 10A, 10B, 80IB should continue. There should not be any change in the depreciation rate and tax incentives should not be withdrawn in an arbitrary and ad-hoc manner.
To encourage mergers, demergers, spin offs and slump sales, the Government should simplify rules, existing conditionalities in the form of change in the line of manufacturing activity, taking over assets of the amalgamated company should be done away with and demergers be made possible under Section 293(1)(a) of the Companies Act, 1956 also.
To revive the capital market and boost savings, shareholders should be exempted from dividend taxation and Section 80CC should be re-introduced.
On indirect taxation, the Government must take all measures to reduce the excise duty on price elastic goods to step up the demand in the economy. Special Excise Duty of 16 per cent on eight product categories should be done away with.
Also, any further reduction in Customs Duty should be done only after removal of the disabilities such as labour, infrastructure cost, power, interest, taxes and duties and small scale reservation.
There is a need to enhance Plan expenditure in the areas of rural development, road transport and highways, elementary education, power, drinking water supply and urban development.
Dr Muthiah is the president of Federation of Indian Chambers of Commerce and Industry (FICCI).