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Budget 2013-14: India Inc against higher taxes for super-rich

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New Delhi:

At a pre-Budget consultation meeting with Finance Minister P Chidambaram, India Inc has suggested that the government avoid new taxes and taxes on the higher income group not be raised.

"It is important to avoid new taxes to preserve sentiment. The government should not levy commodities transaction tax," said Adi Godrej, chairman of Godrej Group.

Naina Lal Kidwai, president of industry body FICCI and HSBC's country head for India and director of Asia Pacific, has proposed that corporate taxes be kept unchanged. The threshold for paying income tax at 30 per cent should be raised from Rs 10 lakh to Rs 20 lakh, she added.

"A higher rate of tax on the high income group is uncalled for... it will discourage entrepreneurship," Ms Kidwai said.

Expressing similar views, Assocham President Rajkumar Dhoot said: "Nowhere in the world this happens. Our opinion is tax them (the rich) but tax them reasonably. They have money and with that money they invest in the country, which generates jobs. The investments from the rich men also give excise duties, sales tax and hence generate revenues also."

Commenting on the issue, Mr Godrej said: "We have said that any increase in taxes (on rich) will create a negative perception on investment and therefore should be avoided."

Economists had earlier asked the government to levy higher taxes on the super-rich, encourage small savings and try to bring down inflation to 4-5 per cent. Dr C Rangarjan, chairman of Prime Minister's Economic Advisory Committee (PMEAC), has also, on numerous occasions, supported the idea of imposing a surcharge on income above a particular threshold. "I believe as we go along, we need to raise more revenues and people with larger incomes must be willing to contribute more," he had said in January on the sidelines of the Financial Inclusion Day seminar.

During their customary pre-budget interaction with the Finance Minister, the economists also recommended the introduction of inheritance tax as well as a widening of the tax base to increase revenue and contain fiscal deficit.

Mr Godrej said an inheritance tax will dampen sentiment without contributing to the exchequer. According to Sandip Somany, past president of the PHD Chamber of Commerce and Industry, the industry feels that economic environment is not conducive to imposition of this tax.

"Inheritance tax is a phenomena in developed countries and no developing country has this tax. So, we said that this tax should not be there," he said.

Meanwhile, Ms Kidwai said that the tax will dilute promoters' shareholding, penalize savings and investment and discourage capital formation. "An inheritance tax will also encourage tax avoidance."

Originally introduced in 1953, the inheritance tax was abolished in 1985 by the then Finance Minister V P Singh.

The issue of the proposed goods and service tax (GST) was also taken up at the meeting. According to Mr Godrej, the industry wants early implementation of GST. "Industry is looking forward to a fresh date of implementation of GST," he said after the meeting.

"It is requested that the draft legislative framework should be placed in the public domain so that industry can study the impact and gear up for a smooth transition to the new system of taxation," Ms Kidwai said.

A value-added tax (VAT), expected to be implemented by 2013, will replace all indirect taxes levied on goods and services, and is expected to integrate state economies and boost growth.

Other recommendations include gradual removal of the subsidy on diesel in three years, removal of the mandatory spend of 2 per cent of profit after tax on corporate social responsibility-related activities, and extension of the 2 per cent interest subvention to all sectors of exports and tax deduction on expenditure for 'going green'.

Both Mr Godrej and Ms Kidwai also said that peak customs duty should be maintained at 10 per cent, and any cut in it will lead to cheap imports.

"Excise and service tax rates should be left unchanged," Ms Kidwai added.

With factory output slowing amid a high interest rate regime, industry is seeking steps to improve the investment climate and boost business sentiment.

After the meeting, Mahindra & Mahindra chairman, Anand Mahindra said the Finance Minister pointed out that the primary concern of the government was to kick-start investments, consumption and ensure there is sustained flow of investments from overseas.

"His (Chidambaram) specific request to the industry was to provide ideas by which investments could be revived both foreign and domestic. Most of the (participants) had given very good ideas and outlined what are the obstacles to investment," he said.

On his part, Mr Mahindra said: "We are on the verge of making a very major investment, but we are held up by an uncertain regulatory regime that is all this talk about taxes on diesel cars".

The Finance Minister has already held consultations with bankers, trade unions, economists and agriculturalists, among others.

With inputs from PTI

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