In order to give Corporate India the much-needed boost in its quest for growth and competitiveness, Federation of Indian Chambers of Commerce and Industry on Thursday presented the finance minister a 14-point fiscal correction agenda.
The points mentioned in the agenda include, a re-look at the hike in surcharge on corporate tax, reduction in the depreciation rates, introduction of Fringe Benefit tax, widening of the scope of weighted benefit for promotion of R&D, abolition of Dividend Distribution Tax and Banking Cash Transaction Tax, and discontinuance of Education Cess.
In a letter to the finance minister, FICCI president Onkar S Kanwar, while applauding the path breaking initiatives in the 2005-06 Budget proposals for empowering the masses of India and ensuring sustained economic growth, has spelt out the key problem areas that need to be addressed when the Finance Bill comes up for discussion.
Kanwar has pointed out that while the reduction in corporate tax rate for domestic companies from 35 per cent to 30 per cent is a definitive welcome step, which has been met with cheer in the entire industry, the increase in surcharge from 2.5 per cent to 10 per cent coupled with the continuing education cess causes an effective tax reduction to the tune of only 3 per cent, thereby defeating the very purpose of reducing the basic corporate tax rate.
"We would urge you to kindly consider restoring depreciation to its earlier level to provide greater benefits to the industry," he said.
The letter notes that the imposition of the Fringe Benefit Tax regime has created some discontent. The memorandum explaining the provisions in the Finance Bill, 2005 gives the rationale behind this levy as the need to tax the expenditure incurred by the employer apparently for business purposes, which has a measure of "personal benefit" to the employee.
According to a FICCI release, a few concerns definitely arise in this regard. The nature of this levy appears to be that of an expenditure tax and takes us back to the pre-1998 scenario when such expenditure was disallowed.
In fact, in the Budget speech of 1997-98 in paragraph 106, it was proposed to provide for removal of artificial disallowances on account of advertising, traveling, hotel expenses, entertainment expenses incurred for legitimate business purposes.
Thereafter the same have been allowed as business expenditure. Imposition of this levy would mean bringing such items within the tax net again.
FICCI has also suggested restoration of the depreciation rate to its earlier level and take this opportunity to suggest that to provide even greater boost to the industry and economy, the government may consider introducing the concept of free depreciation, as is the practice in UK.
Further, FICCI has suggested withdrawal of the Banking Cash Transaction Tax in its entirety, move the 30 per cent tax level to income beyond Rs 500,000, with a target of Rs 10 lakh (Rs 1 million) in the coming years, to bring the agricultural income, especially income from commercial crops beyond Rs 500,000 within the tax net to be taxed at a flat rate of 15 per cent, and the need for with internal reforms to ensure the competitiveness of domestic industry.