Dear Mr Finance Minister...

Updated: Jan 21 2003, 05:30am hrs

There seems to be an upturn in the economy. Even with a flat agricultural sector, India should get over 5.4 per cent GDP growth in 2002-03. Inflation is under control and interest rates are falling. We have concerns about the rising fiscal deficit and the extent of currency appreciation. But this is a good opportunity to push for 8 per cent GDP growth and a concomitant industrial growth of 11-13 per cent.

The key to achieving these growth rates lies in having a rational duty structure. The three rate excise duty structure of nil duty; 8 per cent and 16 per cent proposed by the Kelkar taskforce on indirect taxes is welcome.

However, the reduction in duties must be achieved fast for the benefits to start accruing. The proposed reduction of 4 per cent points per year is too slow.

Among sectors, special emphasis must be given to textiles, tourism and healthcare. These sectors have tremendous potential to grow in terms of employment, contribution to the exchequer and capacity to earn foreign exchange provided they get adequate fiscal support.

The big push for textiles, garments and apparel can come from a package that includes reduction in basic excise duty to 8 per cent, removal of special excise duty, removal of additional excise duty (AED) levied in lieu of sales tax by value added tax (VAT) and scrapping additional duties of excise.

The reduction in duties will not have any adverse impact on revenues, as price elasticities in the textile sector are significantly greater than one.

Duties are also excessively high in the tourism sector. The total tax on tourism at Central and state levels is currently 30 per cent. Rationalisation of Central and state duties should ensure that it does not exceed 15 per cent.

The downward revision in customs tariff is a step in the right direction. However, tariffs should be fixed after taking into account all non-CENVAT-able indirect taxes, cesses and local levies that reduce the level of protection to domestic manufacturers.

In addition, domestic manufacturers bear significantly higher cost of capital, power and other infrastructure compared to importers. CII is strongly in favour of continuing the Duty Entitlement Pass Book (DEPB) Scheme and merging it with Drawback Schemes from 1 April 2005.

In the agriculture and food sector, special attention needs to be paid to investments in irrigation development and providing incentives to processed food sector by continuing the exemption from excise.

On direct taxes, CII has recommended a reduction in the corporate tax rate from the existing 35 per cent to 30 per cent. This should apply to domestic as well as foreign companies, as there should not be any discrimination in tax rates. In the area of corporate restructuring, CII has suggested that the norms for availing fiscal benefits should be streamlined further in order to enable companies to restructure and remain competitive.

The surcharge, currently being imposed at 5 per cent, should be completely withdrawn. MAT should be eliminated or the provision should be streamlined by keeping the infrastructure companies out of this provision and restoring credit for MAT.

In many sectors exports are driven by closely held companies and dynamic small and medium enterprises (SMEs). Often, these companies change hands, with more more efficient entrepreneurs buying out others.

It is unfair to deny what is essentially an export benefit to SMEs and closely held companies. Tax incentives available to the exporters under section 10A and 10B should continue. Benefits available to infrastructure companies under section 80IA and 80IB can be withdrawn only if the government accepts to permit unlimited carry forward of unabsorbed business losses against the current eight years restriction.

For personal taxes, a three-slab structure is preferable to the two slab rates suggested by the Kelkar taskforce. Rebates available to the individuals under section 88 regarding interest on housing loans should continue. This has provided a tremendous impetus to the growing housing sector. Complete elimination of this benefit would have a severe adverse impact on several other sectors like steel, cement etc. In line with international norms, there should be adequate incentives for individuals to invest in pension funds.

Yours Truly

Ashok soota
President, CII