Dear Mr. Finance Minister...

Updated: Jan 25 2003, 05:30am hrs

The public sector in India was created to lay robust infrastructure, strong foundation for industrial development, spur economic growth, generate employment and meet other social goals. With the changing economic environment, public sector enterprises (PSEs) now have the mandate to be globally competitive. This requires greater functional autonomy, level-playing field, real time management and right-sizing of PSEs. With the contributions of PSEs, the desired 8 per cent gross domestic product (GDP) growth and 11-13 per cent industrial growth can be achieved comfortably.

The public sector has to gear itself to face global competition. We, therefore, urge the government to make tax laws more conducive to encourage voluntary retirement. Tax exemption limit for sums received by employees on voluntary retirement may be enhanced to Rs 10 lakh from the existing limit of Rs 5 lakh as this incremental incentive will make voluntary retirement schemes more attractive. The ministry may also consider increasing interest rate on RBI Relief Bond from 8 per cent to 9 per cent. Also the compensation received by a person on medical termination should not be treated as income while computing total income of the employee. A new section may be introduced in this regard. Apart from voluntary retirement scheme (VRS) related proposals, the ambit of Section 10(23G) of the Income-Tax Act may be further widened to include more items in the infrastructure sector.

On direct taxes, there is need for rationalisation and simplification of laws concerning personnel and corporate taxes, housing sector, aviation, power and petroleum and natural gas. This should be done in a way so as to ensure that cost of financing particularly from abroad is not at a disadvantage for domestic companies. Ceiling on reimbursement of expenses incurred on medical treatment of the employee or his family member needs to be enhanced from Rs 15,000 to Rs 1,00,000.

Lowering of corporate tax rates from the present level of 35 per cent is necessary for giving push to the economy and to enable domestic companies to face the global competition. We suggest a uniform corporate tax of 25 per cent. Also surcharges introduced under certain contingencies be withdrawn as the earlier circumstances necessitating do not exist now.

To promote housing activities, the income from renting of properties be taxed at a flat rate of 10 per cent for first five years besides depreciation allowance of 50 per cent be allowed on investment made by employers in employee housing. In order to make property management a viable activity, income of firms engaged in maintenance, repair and other specified management services for rental housing blocks may be brought under Section 10(23 G). The income from housing property be computed after a deduction of 50 per cent of the annual rental value instead of the prevailing 30 per cent.

For promoting the infrastructure sectors like airports, power and petroleum, we suggest changes in withholding tax provisions so that tax on foreign borrowing by industrial undertaking particularly for the aviation sector is less.

The ministry should also consider depreciation at the rate of 60 per cent for indigenously produced aircraft, tax sops for expenditure on development on the line of those given for scientific research and amendment in Section 43(A) to provide the depreciation on enhanced cost of the asset in the year in which cost has been enhanced due to loss on account of foreign exchange fluctuations. The ministry should also withdraw of inland air travel tax of 15 per cent.

The forthcoming budget should endeavour to provide a level-playing field for its member enterprises not only vis-a-vis the domestic industry in the private sector, but also vis-a-vis the Indian industry and the global competitors.

Yours Truly,

SM Dewan
Director General, SCOPE