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Impose higher taxes on super-rich, economists tell Chidambaram

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New Delhi:

Leading economists yesterday asked the government to levy higher taxes on super-rich, encourage small savings and try to bring down inflation to 4-5 per cent.

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

Inviting suggestions from economists, Mr Chidambaram said economic and political developments in the Eurozone area and the US had their impact on the world economy, including India.

However, he said a slew of reform measures taken by the government had a positive impact on the market sentiment. He said that the resolution of the 'fiscal cliff' in the US too had had a positive impact on market sentiment worldwide.     

He said that the "difficult phase is over" and now the focus would be on achieving higher growth during the year. He further said that there are mixed signals from market regarding the current economic situation in the country. He informed the economists that direct tax collections are satisfactory while indirect taxes, including excise duty, are falling short of expectations.

Suggestions given by economists, according to a release, included "following of the principle of progressivity, i.e. higher tax rates for high income group, a widening of the tax base and effective enforcement of tax laws to penalise those who hide their income and pay less tax as well as those who despite high income do not pay any tax at all".

C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council (PMEAC), had recently suggested that the government impose higher taxes on persons with an income beyond a specified threshold.

Many economists favoured the introduction of inheritance tax and certainty in tax laws and an early resolution of tax disputes in a time-bound manner to release money.

There was also a suggestion to set up an asset management office especially to manage Central Government urban land in cities.

Some economists asked for quick action to bring inflation down to 4-5 per cent at the earliest, higher investment in health and education sector, higher capital expenditure on agriculture and increasing storage capacity for foodgrain.

Another suggestion was to give incentives to boost small savings schemes as savings under these schemes have gone down by 5 per cent over the years; there was also a suggestion to reduce the interest rate and double agriculture credit, the statement added.

They were also for increase in fees for higher studies in universities and professional institutions and diversion of extra funds for primary and secondary education for poor and weaker section of society.

Independent economist Rajiv Kumar, after the meeting, said that of the 125 million non-agricultural households, 20 million are below the tax exemption limit, 30-40 million are below poverty line.

"(only) 35 million pay tax...that still leave about 30 million households which are not in the tax net," Kumar said.      

He said by expanding the tax base government's revenue could increase significantly.

"There is a need to somehow improve tax administration and tax compliance. And by expanding the tax base you could almost double the tax base at this point of time," Rajiv Kumar told reporters after the meeting.

He said that of the 125 million non-agricultural households in the country, 20 million are below the tax exemption limit, 30-40 million are below poverty line.

"35 million pay tax...that still leave about 30 million household which are not in the tax net," Mr Kumar said.     

Some economist, Mr Kumar said, also urged the government not to come out with a populist Budget and give right signals to investors.

Economist with ICRIER Nitin Desai, who also attended the meeting, said that most of the participants opined that government should think about levying inheritance tax.

Some participants suggested that government should announce reforms at regular intervals to keep the market sentiments high. There was also demand to put BASEL III Reforms on hold for a year keeping in view the current economic situation.

Economists were also for shifting the pre-Budget consultation process in October when the process starts.     

The release further said there was also recommendation to improve investment cycle by removing uncertainty in tax laws, investor friendly tax regime and rationalisation of Centrally Sponsored Schemes among others.

Other economists who participated in the meeting include Surjit Bhalla, Omkar Goswami, Pulin Nayak, Ajit Ranade and Amar Yumnam.

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