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Move away from ad hoc taxation of services: BCIC

BS Reporter  |  Cheennai/ Bangalore 

With implementation of the goods and services tax (GST) structure getting postponed, with states failing to arrive at a consensus on a revenue-neutral rate, there is a need to move away from the ad hoc taxation of services by including select services in each Finance Act. Instead, there is need to move towards a clearly-defined inclusive definition for taxing services with a clear negative list for exempt services and services of public consumption, an industry body has said.

The Bangalore Chamber of Industry and Commerce (BCIC) has said that unless such a pragmatic move is made, a GST structure cannot become reality in the stated time frame.

“A larger issue which the FM needs to address is that if he were to make GST a reality, then the Centre has to take a larger call to underwrite any revenue loss as it is feared that the producing states would be the losers and consuming states the beneficiaries in a GST regime,” K R Girish, president, BCIC said.

In a pre-budget expectation, he said the finance minister should take a call on making good by the Centre on any revenue loss suffered by the states with the introduction of GST.

“Coming to the direct taxes it is unlikely that any tinkering would be done given that the direct tax code has already been put up for debate. Various anomalies have been pointed put in the government by the chambers of commerce, professional bodies and the like, and this require serious consideration before the code becomes an Act. Having said that there are a couple of issues which the FM needs to address in the present year budget itself in order to benefit from the buoyancy in the direct tax collection,” Girish said.

With respect to personal taxes, there is an immediate need to recalibrate the slab rates so that the effective rate of taxation for the small income group is reduced thereby giving enough surpluses left in their hands, he said.

There is a need to bring in a separate tax deduction for savings in investment of infrastructure projects with an upper ceiling so that domestic savings can be garnered for infrastructure, at the same time higher tax payers do not misuse this benefit.

In respect of corporate taxation, there is an immediate need to do away with surcharge and cess, as there is no logic in continuing with this surrogate system of taxation to garner revenues, he stated.

“If the consensus is to give an extended tax holiday benefits for units in SEZs both from the horizontal and vertical equity there is a clear case to extend the tax holiday to units in Software Technology Parks and EoUs. No system of taxation can operate in a lopsided manner by providing benefit only in a particular zone and not extending a similar benefit to others. This goes against the canons of taxation,” Girish added.

The next century belongs to India and there is an immediate need to encourage research and innovation. The R&D deduction for profits made by R&D companies need to be reinstated, he said.

India Inc needs to build capacity and there is a need to give fiscal concession to Indian corporates who plough back profits into capital projects. There is a need to introduce investment allowance provisions.

First Published: Mon, February 22 2010. 00:24 IST