New Delhi, February 28, 2007: Mr. Habil Khorakiwala, President, FICCI complimented the Finance Minister on the major steps he has proposed in the social sector. However, Mr. Khorakiwala felt that an opportunity of reaching a two-digit growth trajectory has been missed in view of the tax proposals.
Mr. Khorakiwala referred to the four major steps announced by the Finance Minister, namely, massive step up in outlay on education (34.2%), health (21.9 %), school education (35%) and curtailing the drop out rates through scholarships (1 lakh). He welcomed the emphasis on agriculture and rural development to launch a second green revolution; focus on infrastructure building and introduction of new infrastructure financing schemes, and human resource development through secondary, higher and vocational training throughout the country, and hoped that these would help in sustaining the current growth rate in the long run.
FICCI also welcomed the Finance Minister’s announcement to extend the existing in-house R&D benefit by another five years. The Finance Minister has provided income tax surcharge exemption to firms and companies with taxable income up to Rs 1 crore; raised the excise duty exemption limit for Small Scale Industry from Rs. 1 crore to Rs 1.5 crore, biodiesel and food mixes.
However, the FICCI President pointed out that the corporate sector expected a lowering of the tax rates in view of the buoyancy in reveneue collections. On the contrary effective tax incidence would be going up by more than 1% as a result of the new tax proposals, he felt.
The Finance Minister has introduced an additional cess of 1% for financing secondary and high education; hiked Dividend Distribution Tax from 12.5% to 15%; raised the Dividend Distribution Tax on dividends paid to all investors by money market mutual funds and liquid mutual funds to 25%; brought ESOPS under the FBT net; extended MAT to IT sector and extended 12% service tax on rental on property for commercial purposes.
These measures, the FICCI Chief pointed out, would further add to the tax burden of corporates and send wrong signals at a time when India Inc. was expecting rationalization in corporate tax rates to yield larger revenues through the operation of the Laffer curve effect.