Industry bodies in their recommendations for the Union Budget 2016-17 have sought to step up public investments, particularly in infrastructure and rural sectors, to boost economic activity, a cut in corporate tax rate and a calibrated phase-out of tax exemptions.
The CII recommended that capital expenditure on key projects in sectors such as roads, railways, irrigation and power be increased substantially. However, the industry body also said this should not be done at the cost of a slippage in fiscal deficit.
Among other suggestions, industry bodies also recommended a direct transfer of fertiliser subsidy to farmers in the form of cash, a greater implementation of direct benefits transfer, a steady reduction in the fuel subsidy bill and clarity in tax policy.
While CII sought corporate tax rate to be reduced to 22 per cent from 30 per cent and announce a year-wise road-map for the same, FICCI pitched for a cut in the rate of minimum alternative tax (MAT).
In the last Budget, Finance Minister Arun Jaitley had promised a gradual reduction in corporate tax rate from 30 per cent to 25 per cent over a four-year period which has to be accompanied by a phase out of various tax exemptions.
Though the industry bodies welcomed the move to remove exemptions, they think that MAT should be withdrawn or the rate should be reduced in a calibrated manner.
Both industry bodies—CII and FICCI—also sought implementation of the Tax Administration Reforms Commission’s (TARC) recommendations to overhaul the tax administration of the country.
The Union Budget for 2016-17 will be presented by Finance Minister Arun Jaitley on February 29.
Key recommendations of three industry chambers
On capital expenditure front, CII recommended that investment in the infrastructure sector should be increased and a focused attention should be paid to rural demand, which can be supported through spending on rural roads and irrigation.
It suggested higher allocation to schemes such as Pradhan Mantri Gram Sadak Yojana and Pradhan Mantri Krishi Seenchayi Yojana, as this could have a much greater impact on the rural economy than spending on subsidies or employment guarantees.
On reduction of corporate tax, CII said the rate of tax should be 22 per cent (inclusive of surcharge and no other additional levies should be imposed over and above this rate) and not 25 per cent.
It also recommended speedy implementation of industrial clusters and parks such as NIMZ, DMIC and DFC projects.
Besides, the government should appoint an implementation group comprising professionals to oversee and monitor implementation in a time-bound manner, it said in its submission to the finance ministry, adding, “Whatever is recommended need not be implemented in entirety.”
The chamber suggested recalibration of fiscal deficit roadmap to promote public investment. “There is a need for the government to increase public spending after which the private investment will follow. There is a need to create a demand push,” said FICCI.
FICCI in its representation said that the government should "give up the policy of setting tax collection/revenue targets for tax officers, since tax collections vary with the economic cycle/business conditions. Judiciousness and fairness in the assessment orders passed by the officers should be made a criterion for performance appraisal of the assessing officers".
The industry body also suggested that there is a need to widen the tax base, saying that all incomes (irrespective of the source) above a certain threshold need to be taxed.
“To ensure that there is no tax evasion, the government should consider making filing of returns/declaration of all incomes mandatory over a particular threshold, say Rs 10 lakh,” it said.
FICCI also asked the government to consider providing 3 per cent interest rate subvention (as provided to exporters) for loans up to Rs 10 lakh. Stamp duty exemption may also be provided for such dwellings.
According to ASSOCHAM, the forthcoming Budget 2016 is poised to be a game changer in reviving investment, economic growth and job creation, enabled by the next generation reforms to fast-track India’s economic resurgence.
The industry body called for boosting infrastructure investment through support from IIFCL to rebuild capacity of private infrastructure companies. The recommendations include replacement of costly bank guarantees by bid bonds and doing away with the surcharge on corporate tax and service tax.
It also recommended that the tax regime should be improved along with ease of doing business.
“Eliminate all surcharges on corporation tax, service tax, etc. This does not promote ease of doing business, when everyone has to calculate taxes to two decimal places. Adjust tax rates where necessary,” it said.
Besides, ASSOCHAM suggested that the government gives tax breaks similar to IT parks, for ‘startup hubs’ in each city, in order to promote entrepreneurship in smaller towns, especially that which is not around IT. These startup hubs are like incubators, but for all kinds of businesses, especially service and professional businesses.