Arvind Kejriwal's AAP to unveil business-friendly face

Written by Rajat Arora | New Delhi | Updated: Jan 20 2014, 13:51pm hrs
AAPAgainst any future amnesty scheme for tax evaders as they encourage black money
In a bid to ward off criticism that it lacks a coherent economic policy, the Aam Aadmi Party, in a soon-to-be-released vision document, will outline a plan to remove various tax deductions allowed to corporate India, while expecting the Centre to rely more on direct taxes for its revenues and favouring foreign direct investment (FDI) in all sectors, except defence and other sensitive areas, provided these capital flows dont lead to creation of monopolies.

The AAPs Delhi state government may have decided against allowing FDI in retail, but its draft economic vision document, a copy of which has been seen by FE, says, FDI in retail or banking is to be welcomed as FDI improves competition.

The party, whose spectacular show in the recent Delhi assembly elections and whose ambitious plan to contest over 400 Lok Sabha seats prompted political observers to watch it closely in the run-up to the general elections, also proposes to legislate to pre-empt any future amnesty scheme for tax evaders while stating that subsidies that dont reach the intended beneficiaries could be weeded out.

Besides slashing corporate tax exemptions, the AAP, if it comes to power, would also introduce a carbon tax on companies. The Direct Taxes Code (DTC) Bill before Parliament anyway proposes to replace profit-linked deductions with investment-linked ones.

The AAP discussed its draft economic policy with economists and technocrats on Sunday here.

The document, which will form the basis for its national election manifesto, proposes a potent dose of tax reforms. It makes a strong case for eliminating hundreds of different types of deductions on taxable income and for strictly enforcing tax compliance. The AAP is contemplating to raise the share of direct taxes in the government's gross tax revenue from 54% at present to 65% in eight years. Focusing on corporate, personal income and wealth taxes for revenue mobilisation implies that the party does not want to hurt the aam aadmi who has to pay indirect taxes on most of the products and services purchased.

The AAP, led by Delhi chief minister Arvind Kejriwal, wants the government at the Centre to depend less on indirect taxes (excise, service tax, customs duty, etc) for revenue. The party, therefore, proposes to increase the coverage of corporate, personal income and wealth taxes and raise the marginal tax rates. The higher resources thus raised would be utilised for job creation and poverty removal, says the draft. It also proposes a six-month public consultation before making any changes in tax rates.

Indirect tax revenue used to be higher than direct tax receipts up to 2007-08, but from 2008-09 onwards, direct taxes overtook the other. Now, individuals and resident Indian companies have the highest marginal tax rate in the country of 30%, while non-resident companies are taxed at 40%.

During the discussions with economists on Sunday, Kejriwal made it clear that the party's policy should offer governance that is least intrusive to businesses. Kejriwal also told the economists that the party would absorb good ideas from everywhere, whether they are espoused by the left or the right. Sources said the Delhi chief minister also prefers the government to be a facilitator to businesses, not an obstacle.

A seven-member panel of the party is finalising the economic policy vision document. Meera Sanyal, former CEO of RBS, Sanjiv Aga, a former corporate executive, economist Laveesh Bhandari and Atishi Marlena, a scholar, are among those in the panel.

AAPS ECONOMIC POLICY

* To embrace FDI in all sectors (including retail and banking) that do not create monopolies

* Eliminate tax deductions and enforcing tax compliance

* Raise upper ceiling of direct taxes, introduce carbon tax under consideration

* Raise share of direct taxes in gross tax revenue from 54% to 65% in eight years

* Reduce Centre's dependence on indirect taxes and increase the coverage of direct taxes

* Against any future amnesty scheme for tax evaders as they encourage black money

* National economic policy to favour weeding out subsidies that do not reach intended beneficiaries as subsidy leakage is unfair to the taxpayer

* Government to be facilitator to business, not obstructor to the taxpayer