While appreciating the "wide ranging" initiatives in rationalising the tax structure, the chamber said in a post-budget memorandum that the Government should review the surcharge so that the positive trend of higher voluntary compliance is not reversed.

"The reduction of income-tax rates during the past few years to a reasonable level has demonstrated a better compliance. In spite of recessionary trends in trade and industry, direct-tax collection has gone up. Therefore, the income-tax and corporate-tax rates should have been maintained and additional tax revenue collected by widening the tax base, both for direct and indirect taxes," the chamber has said.

While lauding the finance minister's initiative to make Y2K expenditure incurred between April 1, 1999 - March 31,2000 deductible, the chamber has sought the extension of this sop on expenditures made in earlier periods as well. "The provision penalises those companies which responded quickly to the impending danger of non-Y2K compliance and incurred expenditure prior to March 31, 1999," the post-budget memorandum states.

The chamber has drawn Sinha's attention to the anomalies in the employees' stock-option scheme. It is feared that the proposed amendment in Section 17 of the Income Tax Act may lead to taxation of employees as a shareholder if they receive bonus shares or shares out of a reserve quota, or otherwise as a shareholder in case of public or rights issues at a price less than the market price prevailing on the date of allotment.

"This cannot be the intention of the Government. It is recommended that the issue of bonus shares and public/rights issue made at a uniform price to employees and other shareholders should be exempted from the proposed amendment to section 17," the chamber has said.

Besides, ithas also suggested that the market price prevailing on the date of exercise of the option should be considered for the purpose of computing perquisite value under Section 17(2)(iiia).

The Bombay Chamber has said that demerger should be made tax neutral and that the written down value method of computing depreciation, in case of both the demerged company and the resultant company, should be taken on uniform basis. The finance bill had proposed separate basis of depreciation for the the demerged company and the resultant company.

The chamber has said that the ambiguities concerning tax proposals on amalgamations needed to be sorted out so as to "appropriately" rationalise the provisions. The meaning of `value of the assets', as has been stated in the pre-conditions in the amended Section 72A(2), is shrouded in ambiguity as it does not clarify whether it is the gross book value of fixed and current assets, or net book value of fixed and current assets, or only fixed assets or the market value of such assets,the chamber has said.

"The composition of the "current asset" changes day-to-day in business, and, therefore, it would not be possible to hold the same current assets during the period of 5 years," the chamber pointed out. The Finance Bill, in one of the pre-conditions for amalgamation, has stated that the amalagamated company should hold continiously for a minimum 5 years at least 75 per cent in the value of assets of the amalgamating company.