Six points to sustain high growth rate

To achieve high and sustained GDP growth rate, the Associated Chamber of Commerce (ASSOCHAM) has proposed making India a common economic market by implementing Goods and Services Tax (GST), reduction in the excise duties, rationalisation of taxes on key infrastructure, encouragement of indigenous R&D, corporatisation of agriculture and promotion of India as a global headquarter of business enterprises.

At the meeting with the officials of the Finance Ministry chaired by Revenue Secretary, P.V. Bhide, the industry chamber has stressed the need to implement GST at the earliest so that cascading effect of taxes is removed form indigenous manufacturing and services cost, transaction cost is reduced and trade and industry grow faster by taking advantage of scale economy and efficient supply chain.

The process of replacing existing complex indirect tax system by GST should be initiated in the forthcoming Union Budget by taking initial steps towards GST, according to ASSOCHAM. It has suggested that the CST rate should be reduced from 3% to 2% as a step towards creating Indian common market. Excise and service tax be integrated into Central GST during 2008-09 and sugar & textiles should be brought from special duty regime to VAT regime, ASSOCHAM adds.

The ASSOCHAM delegation says that the manufactured goods are still quite expensive. Therefore, a reduction in the excise duty rate to 12% will make them affordable to larger population and will boost their demand, accelerating the manufacturing sector’s growth with minimum impact on revenue. Such reduction will also align the tax rates under excise and service tax, facilitating their integration under Central GST. The excise duty rate on automobiles should also be moderated by removing the special excise duty on this sector, the chamber says.

To upgrade the country's infrastructure significantly to sustain economic growth, ASSOCHAM President Venugopal N. Dhoot says that service tax and excise duty on inputs during the investment phase should be exempted from tax or refunded. Tax may be collected once the projects are put to use and start earning revenue, he adds.

At present, a large number of Indian companies are investing overseas for profitable growth and strategic advantage. Any dividend remittance by such foreign companies to India attracts full tax even where such profit from which dividend is remitted has suffered tax in the host country. This has led to Indian companies setting up head offices abroad or parking funds overseas.

Many countries exempt such dividend where the shareholding is substantial (20% to 40%), ASSOCHAM says. India should promote itself as a headquarter of business enterprises and retain long term capital in India by exempting dividend remitted by foreign subsidiaries or associates with 40% or more investment, it adds. Alternatively the tax paid on profit from which dividend is declared should be given credit.

ASSOCHAM suggests the creation of an Agriculture Economic Zone on the line of SEZ, in order to achieve the agriculture growth of at least 4% on the sustainable basis. The Government will have to ensure adequate investments in the areas like pre & post harvest management, food processing, export promotion related activities, specific crop related activities and application of the R&D to the agricultural production, the chamber adds.

In order to ensure that there is adequate quality produce, investment in irrigation, transport, rural electrification and telecom will be required apart from pre and post harvesting activities, feels ASSOCHAM. This will help develop rural infrastructure as well as provide employment to people engaged in agriculture, it adds.

For a strong research base and pool of intellectual properties, ASSOCHAM proposes that scientific research in emerging sectors like bio-technology, nanotechnology, industrial deigns, IT, telecom, food processing, medicines and engineering should be given favourable tax treatment under direct and indirect taxes to encourage such activities and the double taxation of intellectual properties under service tax and VAT regime should be discontinued.