Tuesday, June 30, 2009

Need to give incentives for export sectors hit by slowdown

Taxation is the price which we pay for civilisation. It is therefore important in everyone’s life. The role of direct taxes is very important in any economy because direct taxes do not create distortion in the market in terms of increa sing the price of goods. Direct taxes play a big role in any industrial economy. In India, collection from direct taxes for the first time exceeded collection from the indirect taxes in the financial year 2007-08.

In the Budget for 2009 because of the economic slow down, the task of the finance minister is very difficult. The economy needs money for pump priming the economy whereas the people want lesser taxes. The wish list of the corporate and the taxpayers is very large and the government has constraints in view of the fact that large sums of money are required to bring economy back into the shape.

The aim of the budget should primarily be to bring employment back in the Indian economy. Employment can be generated through investment in infrastructure projects such as construction, roads, bridges, powers, ports, hospitality etc. There is shortage of residential houses in the country. Incentives can be given to buyers in the form of cheap loans so that the housing industry can boom again. The deduction of interest in the hands of the home buyer can be increased from the present Rs 1.44 lakh.

Incentives in the form of deductions can also be given for the other infrastructure products which have been listed above so that the work goes on in a faster manner.

In the last 4-5 months Indian exports have dwindled and this has led to loss of thousands of jobs. There is a need therefore to give incentives for the export sectors. After all, employment is more important than taxation and if employment increases, the economy will revive which can lead to a larger collection of direct taxes.

One very important aspect in any taxation system is the administration of the tax regime. The tax regime has to be designed in such a manner that tax compliance becomes less costly and less burdensome. In this connection, the finance minister may consider introducing a system of alternate dispute mechanism both for Indian taxpayers and the foreign taxpayers because this would bring certainty at very early stage to the tax disputes which arise. The finance minister may also consider reviving the Income Tax Settlement Commission again as it was a safety valve which is necessary in any system.

The taxpayers want relief in the form of higher exemption limit, abolition of FBT etc. Many of the claims of the taxpayers are correct. In my view, the finance minister could consider constituting an ongoing Tax Commission where the various groups can present their cases and the government can then take a decision on the recommendations of the Commission. One of the items before the Commission should be the improvement in tax administration. This would help the government in giving relief to the taxpayers considering the legitimate needs of the government

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