Dear Mr. Finance Minister...

Updated: Jan 22 2003, 05:30am hrs

India has both, opportunities, as well as new risks for economic growth. If we accelerate our reform process initiated in 1991 and take right and decisive measures to create an environment of economic growth, we can achieve the target growth rate of 7 to 8 per cent with consequent revenue buoyancy.

The critical aspects in our tax reform process should include such measures as moderate tax rate on a large base, reduced fiscal deficit and low inflation rate. The tax incidence should be predictable and certain. This could be done by removing complexity and ambiguity from the tax law and procedures.

Total incidence of central and state taxes on goods manufactured in India is very high and generally ranges between 30 to 70 per cent of the cost of production. This high incidence is on account of narrow tax base. There is an urgent need to reverse the trend and stimulate demand. There is also a need to moderate the tax rates by reducing the excise duty on manufactured goods. We recommend increased capital expenditure in public sector on infrastructure facilities, like roads, power and irrigation, which generate demand for industrial goods and provide employment to a large number of people. We also suggest an increase in the basic exemption limit for income tax from Rs 50,000 to Rs 1,00,000.

The Indian industry is facing stiff international competition, both in domestic and export markets. The slow process of domestic tax reforms is making many domestic units unviable with the falling tariff barriers and removal of quantitative restrictions. We recommend that central sales tax be abolished to make India a one common market. This would enable Indian industry to achieve economy of scale in manufacture and help them reduce manufacturing and distribution cost. We also recommend that existing state-specific sales-tax structure be replaced by integrated national VAT within the promised time-frame starting from April 1.

The integration of world market post establishment of WTO has provided us an opportunity to increase our exports. India, with its large pool of skilled manpower, abundant entrepreneurship, natural resources and lower operating cost, is in an advantageous position to become sourcing hub for manufactured goods. The fiscal laws and procedures should be simplified and should be in consonance with the international law. There should be speedy dispute resolution, which currently takes very long time. Scope of advance ruling should be enlarged. There should be stability in the tax structure. The tax incidence and implementation should be predictable for business decisions.

The existing tax structure has a very narrow base for both, direct and indirect taxes. Though the government has initiated steps to broaden the base, however, these attempts are fragmented and half-hearted. The selective introduction of service tax, without making it Cenvatable, is an indication of slow process of tax reforms. We recommend that the entire service sector be brought under the service tax and made Cenvatable and tax exemptions under direct and indirect tax be reduced along with moderation of tax rates.

The economic slow down and recessionary conditions in many countries have also affected Indias exports. The Indian exporters face stiff competition and high currency risk. We recommend that the tax exemption granted to the dedicated export units located in EPZ, SEZ & EOUs should continue for their unexpired eligibility period up to 2010 as promised by the government.

Yours Truly,

RK Somany
President, Assocham