Bring Corporate Tax Rates Down To 30 Per Cent

Updated: Jun 16 2004, 05:30am hrs
We told the FM that since the issue for raising the growth performance to 10 per cent per annum was critical, there was need to create a framework. There is also the need to push the current rate of savings (24.2 per cent of GDP) and investments (23.3 per cent of GDP) up to above 30 per cent in the next few years. Of this, 3-5 per cent should be realised from foreign investors.

To achieve the 10 per cent mark:

Agriculture growth rates should be doubled.

Industrial growth must rise from 6.5 per cent to 11 per cent.

Services sector must go up from 8.4 per cent to 11 per cent.

Savings And Investment
The current public sector dis-savings of minus 1.9 per cent of GDP should be raised to 2 per cent of GDP. I also proposed that the current corporate investments, i.e, 4.8 per cent of GDP amounting to Rs 1,18,579 crore need to be raised to at least Rs 2,50,000 crore per year. Fiscal reforms, too, are important to achieve this objective.

At the meeting, I advocated the following steps:

Implementation of the recommendations of Geethak-rishnan Committee on Expenditure Reforms and the Fifth Pay Commission, targeting subsidies only for the poor, and deregulating the administered interest rate on small savings, provident fund etc.

On divestment and privatisation, the government should go ahead with divestment of its shares and privatisation and the proceeds should go to a fund dedicated exclusively to the socio-economic development of rural India. The divestment/privatisation target should be at least Rs 25,000 crore per annum, all loss-making public sector companies should be privatised, in all non-strategic profitable companies, divestmen or privatisation should be up to 74 per cent, and in all strategic profitable companies, it should be up to 49 per cent.

Agriculture

Increase growth rate to 4 per cent per annum, immediately raise total investment (public and private) in agriculture and allied activities to over Rs 60,000 crore per annum.

Abolish mandi tax and the Agriculture Produce and Marketing Act and Essential Commodities Act.

Introduce a mechanism of Warehouse Receipts.

Immediately implement the integrated food law.

Manufacturing

Simplification of tax laws and lowering of tax rates. The tax rate for companies should be brought down from 35 per cent to 30 per cent.

Increase tax rate by way of any levy, be in the form of surcharge, cess etc.

Re-activate project financing by strengthening existing DFIs.

Enact a new flexible labour law for new units to allow replacement of non-performing workers with willing workers to encourage labour-intensive manufacturing.

Promote investment in labour-intensive exports, where orders are cyclical and uncertain, laws should provide for contract labour without restriction.

Liberate SSIs from rigid labour laws.

Introduce provisions for carry backward of business losses and for carry forward of unadjusted losses.

Indirect Tax Reforms

Introduction of value added tax at the earliest

Ceiling of CENVAT rate at 16 per cent.

Implement a National VAT, covering all kinds of services with set-offs for all taxes paid, with the total incidence of 16 per cent.

Create a three-tier import duty structure with lowest duty on raw materials, slightly higher on intermediates and highest on finished goods.

Cover all services under the service tax, exempt only public services, essential public utilities and important merit goods. All taxable services should be eligible for VAT/CENVAT credit.

Constitute a committee to periodically review abatement rates.

Restructuring Tax Rates

The aim should be to have 15 crore individual taxpayers.

Income slabs and tax rates for individuals should be remodelled with maximum rate of 30 per cent made applicable on income over Rs 10 lakh and the exemption limit raised to Rs 1 lakh.

Ensure better voluntary tax compliance.

Agriculture income should be taxed beyond Rs 5 lakh at a flat rate of, say, 15 per cent.

Capital Market

Sale of PSU shares can stimulate the capital market

Attract investment in new equities through deduction in computation of total income by 50 per cent of the cost of equity shares.

Exempt long-term capital gains on listed equities acquired on or after March 1, 2004 as was stated in the Interim Budget.