Don't impose higher tax on rich, industry tells govt
New Delhi: Industry leaders Wednesday asked the government not to consider imposing higher tax on high income individuals saying it would discourage entrepreneurship, while seeking early implementation of GST and continuance of the existing corporate tax rate.
At a pre-Budget meeting with Finance Minister P Chidambaram, representatives of industry chambers, including CII, FICCI and Assocham, also cautioned the government against imposition of Inheritance Tax, saying such a step would penalise savings and investments and discourage capital formation.
"A higher rate of tax on high income group taxpayers is uncalled for as this would discourage entrepreneurship. It could lead to professionals relocating to low tax domiciles such as Singapore, Dubai or London," FICCI President Naina Lal Kidwai said.
For personal income taxes, FICCI recommended that the maximum rate of 30 per be made applicable for an income above Rs 20 lakhs (as against the existing threshold of Rs 10 lakhs).
Moreover, it is not the time to further damage the confidence of the investor community which has already been shaken badly on account of last year's tax amendments, she added.
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, CII President Adi Godrej said: "We have said that any increase in taxes (on rich) will create a negative perception on investment and therefore should be avoided."
The point is do higher rates of taxes lead to higher collection or lead to a sentiment, which creates a negative effect on economic growth, he asked.
"We used to have 90 percent rate of taxes and used to have 3 percent of growth. Lower rates of taxes have been known to give higher collection. Absolute collection should increase," Godrej said, adding taxing the rich more and inheritance tax were phenomenon of developed economies.
On the issue of Good and Services Tax (GST), Kidwai said the Centre should reach out to state governments and come out with a clear plan of implementation and timing at the earliest.
"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," she said.
Godrej also said the industry wanted early implementation of GST and expects early resolution of issues related to the amendment of the Constitutional Amendment Bill which was introduced in the Parliament on 22 March 2011.
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, 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". He emphasised on the importance of the auto sector in the economy.
On the issue of inheritance tax, PHDCCI Past President Sandip Somany said 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.
Kidwai said such a tax could be onerous for illiquid assets, like self-occupied housing where the value of the property may have steeply escalated.
"The levy penalises savings and investments and discourages capital formation," she said.
Assocham President Dhoot said implementation of GST was very important for the growth of the economy.
"During the month-end all chief ministers are meeting at Bhubaneshwar. The finance minister has requested all the chambers to meet the CMs and pursue with them for agreeing on GST," he added.
Industry was of the view that government should not increase customs duty, service tax and excise duty.
On the issue of Corporate Tax, FICCI proposed to the Finance Minister that the existing rate should be continued unchanged for the sake of a stable tax regime.