Pre-budget lobbying begins, industry seeks cuts in corporate tax, other duties

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Industry’s demand for tax sops never ceases as Assocham, an early bird among top chambers of commerce and Industry released on Monday a pre-budget memorandum.

It pressed for a lot of corporate tax, service tax, excise and customs duty cuts and raise in income tax exemption limit to pump prime the economy at a time government is struggling to meet revenue targets and contain burgeoning fiscal deficits due to slower growth.

Assocham president R N Dhoot said raise personal income tax exemption limit to Rs 3 lakh, reduce service tax and excise tax to eight per cent from 12 per cent and increase deduction of interest on housing loan to 5 lakh from Rs 1.5 lakh to revive consumer demand and boost investment. The industry group presented its customary set of pre-budget demands to the finance ministry officials on Monday.

The effective rate of corporate tax should also be brought down to 25 per cent from prevailing 32.45 per cent, the memo said.

The demand for reduction in corporate tax came at a time when government is of the view that effective corporate tax is about 22 per cent due to several exemptions though the corporate tax rate was 30 per cent. In fact, the government is contemplating on the possibility of increasing effective corporate tax rate to 25 per cent.

“The base exemption limit of resident individuals below 60 years should be increased to Rs 3 lakh to incentivise them to come into the tax net, ensure higher collection from greater compliance, encourage consumption and savings,” Assocham pre-budget memo for 2013-14 said.

The excise duty and service tax rates were increased in the last two budgets to 12 per cent from an earlier 8 per cent. Meanwhile the industrial growth has significantly fallen and due to low capital investment and high inflation, the demand for indigenous goods and services has been affected adversely.

“It is therefore, recommended that excise duty and service tax rates should be restored to earlier level of eight per cent prevailing two years ago,” the memorandum said. But, it did not say that excise duty and service tax was lowered from 14 per cent in two tranches to eight per cent as part fiscal stimulus after the 2008 global crisis and that the government was yet to get back to the pre-2008 level of 14 per cent.

Dhoot said it was essential to revise depreciation rate on plant and machinery back to 25 per cent from the existing level of 15 per cent in view of technologies saying it would help the industry to invest to revive the sagging economy with GDP growth slowing down to 5.3 per cent in June-September 2012. But, Assocham parried questions on why the public and private sector industry was not investing the huge pile of cash of Rs 6 lakh crore that they were sitting on.

It said the tax base for goods and services has already expanded to generate high revenue and the government can selectively increase customs duty rates to neutralise the impact of lower tax rate of excise duty and service tax. Besides, by increasing customs rates, the government should protect the domestic industry from unfair competition from countries like China. There are cases where goods are being sold in the global market below production cost in highly competitive markets abroad

To encourage investments in infrastructure during the 12th plan period, the deduction under 801A(4) “profit linked incentives in form of 100 per cent deduction of income in SEZ development” must be continued, says the chamber chief. As part of Direct Tax Code, government decided to do away profit-linked incentives and replace it with more efficient investment-linked incentives particularly in case of special economic zones, which is believed to have taken advantage of tax holidays.

With a view to have a level playing field and removal of such levies in the proposed Direct Tax Code (DTC), the additional levy of tax by way of surcharge and education cesses should be removed on corporate assesses and similarly education cess on non-corporate assesses. The surcharges, including the education cess were levied as a temporary measure, Assocham said.

Further justifying the demand for tax reduction rates, at a time when the global economy is passing through tough times, “the Indian industry is facing competitive disadvantages due to complex multi-layered tax indirect tax structure having cascading effect on cost, high compliance cost and prolonged tax litigation”.

Another significant recommendation in the pre-budget memorandum submitted to the finance minister P Chidambaram relates to tax re-assessment in a blanket manner under Section 147/148 of the income tax act on matters already examined.

“In recent times, tax reopening notices under Sections 147/148 have become a very common occurrence and such notices are being served in thousands across the country. Simple audit observations, even on points of law are frequently being used as grounds for re-opening leading to extreme harassment of all assesses,” it said.

Assocham tax expert, Ved Jain accused the government of reintroducing through “backdoor” in the last fortnight positive list for taxation of services, which is believed for accounting purposes. Government had introduced negative list of services from July 1 this year, replacing the earlier 119 services in the positive list that attracted tax. All the 119 services had separate codes. Introduction of negative list is part of the efforts to ready for introduction of goods and services tax.

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