REDUCE TAX BURDEN ON MANUFACTURING SECTOR, MAKE PROCEDURES HASSLE-FREE: FICCI FICCI team led by President Poddar meets Revenue Secretary NEW DELHI, November 27, 2006. Simplification and rationalization of the tax laws with hassle free procedures, reduction in the tax burden on the manufacturing sector, transparency in tax administration and improved quality of tax services, an improvement in the electronic filing of returns on the new Form No.1 for Income tax and FBT, and exemption of the Clinical Research Organisations from the ambit of service tax are the main elements of FICCI‟s wish list in the budget proposals for 2007-08. These suggestions were articulated by the FICCI President, Mr. Saroj Kumar Poddar in his meeting today with the Revenue Secretary, Mr. K. M Chandrasekhar. Accompanying Mr. Poddar were: Mr. H F Khorakiwala, President-Elect, FICCI; Mr. O P Lohia, MD, Indo Rama Synthetic (I) Ltd; Mr. P M Sinha, Chairman, Bata India Ltd.; Mr. Harsh Pati Singhania, MD, JK Paper Ltd.; Mr. Pradeep Dinodia, Senior Partner, S R Dinodia & Co.; Mr. Amitabh Singh, Senior Partner, Ernst & Young. Mr. Poddar drew the attention of the Revenue Secretary to the following key issues that were exercising the minds of the corporates:
Corporate Tax amounts to 40% including surcharge and education cess, FBT and Dividend Distribution Tax. FICCI suggests that this year surcharge should be dropped and then path should be chalked out to move in a steady rate of 25 per cent to bring in line with the rates prevailing in other Asian countries. Cascading effect of Dividend Distribution Tax (DDT) in the case of multiple layers of corporate structure be avoided. All legitimate and bona fide business expenses especially those incurred on sales promotion including publicity be outside the ambit of Fringe Benefit Tax. Long-term Capital gains from Security transactions should not be includible in the computation of book profits for MAT purposes. In any case, deduction on account of STT (paid both at the stage of purchase and sale) should be provided in such cases. Long-term capital gains exemptions by way of investments in specified listed securities should continue to be available. At least the rate of tax on such gains should be reduced to 10% from the existing rate of 20%. The combined effect of excise, custom, sales tax and other local levies are resulting in the effective consumption taxes amounting to over 35% of the final price to the consumer, which is double that of in the UK. A massive cut in commodities tax especially in demand elastic item is inevitable to stimulate demand in the economy. Excise Duty be reduced from 16% to 14% in this year‟s Budget, and further to 12% within next two - three years. FICCI believes that though the reduction in peak customs tariff in the last Budget from 15% to 12.5% is a step towards aligning our tariff rates with those of the ASEAN countries; it would be in fitness of things if the alignment
in customs tariff were calibrated with internal reforms. We must also ensure a 3-tier customs duty structure.
CVD and excise duty paid on all imported and domestic purchases of capital goods continue to get accumulated in a major way as CENVAT credit without the companies being able to get the refund of this huge amount. Government should come out with a mechanism to re-fund this amount rightfully belonging to the Industry, so that cost of capital is confined to the bare minimum. Service tax is now emerging as an important tool of revenue collection for the government. It is high time we should have a separate and comprehensive service tax legislation. While FICCI is all for bringing all services within its net barring basic essentials and public utilities, it is of the view that clinical trial industry which is yet at a nascent stage should not be subject to service tax. The government should allow higher foreign equity in telecom, insurance, pension and other similar sectors to mobilize additional resources for infrastructure investment. The government should continue tax incentives for promoting and encouraging employment generation, savings, investment and infrastructure development and technological upgradation. All industrial undertakings (inclusive of emerging sun-shining industries and facilities) should be granted 100% tax holiday benefit for 10 consecutive years at any time during the first 15 years after the commencement of commercial production/operations. FICCI believes that replacement of multiple taxes by GST will increase the tax GDP ratio by 2%. Perhaps, it may be desirable that the Central Government set up an “Empowered Committee” consisting of the representatives of Central and State Governments at the earliest to finalize the structure of GST and the roadmap for its implementation. Meanwhile we should have National VAT in place, a roadmap be laid down with total incidence of 20% (Cenvat 12% and State VAT 8%), and CST phased out. To widen the tax base, FICCI feels it is high time that the government considered bringing the agricultural income especially from commercial crops and rural rich within the tax net. Grant tax holiday for gas pipelines and associated storage facilities and other related supporting infrastructure on par with other transportation infrastructure like roads, highways etc under Section 80-IA; provide 10 years tax holiday for cold chain infrastructure under Section 80-IA for food processing industry for undertakings involved in complete supply chain; undertakings should be given the option of claiming tax holiday in respect of 100% of its profits for seven consecutive years at any time during the first 15 years after the commencement of commercial production to make the incentive more meaningful; grant Declared Goods Status for Natural Gas; service tax exemption E&P; excise duty on petroleum products should be made specific instead of ad valorem; grant duty drawback on sale of naphtha to fertilizer plants on deemed export basis; consider „Customs and Excise Duty Exemption‟ to plant and machinery used for processing oil seeds for bio-
fuel production; reduce excise duty on polymers to 8%; extend tax incentives like excise and import duty exemption to promote use of bio-diesel and ethanol in auto-fuels; and abolish CST.