Value Added Tax

Over the recent past, the State Governments have brought number of items with uniform VAT rate in the new regime. The Empowered Committee is also taking steps to ensure that one itmes is subject to same VAT rate across all States so that seamless movement of goods can take place without any hindrances. The ultimate objective is to make India “ One Common Market”. The Empowered Committee should ensure that all States come under the purview of VAT regime at the earliest.

It is important to note that entry tax levied by various states on the entry of goods into the local areas is discriminatory in as much as they impose unwarranted restrictions on the import of goods from other states. They are not compensatory taxes, as the amount thus raised is not purported to be used for the development of such trade. Such taxes seem illegal in the light of recent judgment of Hon’ble Supreme Court in the case of Jindal Stainless Steel Ltd. Vs. State of Haryana.

• A dedicated time bound programme that will be completed before 2009 for withdrawal of CST.
• CST should be reduced to 2% at the earliest.
• A clear direction on what Entry tax policy the States will adopt post CST withdrawal and how it will merge with the VAT.
• The ceiling with respecting upper limits and lower limits rates for various products.
• Direction on Documentation that will be required under Zero CST environments.
• Creation of a 3 Party resource like NSDL, which will permit and regulate, generation of online Forms for inter state transactions, which will be connected to the TIN numbers of assesses.

 Tax Rates

Estimate reveal that corporate tax burden is now exceeding 40%, being 33.66% corporate tax rate including surcharge and education cess, 3-4% percentage points on account of Fringe Benefit Tax and another 3-4% percentage points on accounts of Dividend Distribution Tax, besides additional burden owing to the reduction in the rate of depreciation which has gone down from 25% to 15%. The accumulated tax burden of over 40% is on higher side as compared to that prevailing in other countries.

In some countries including Belgium, Canada, Germany, Japan, Luxemburg, UK and USA, small and medium companies are taxed even at rates lower than those on larger companies.

In a global scenario, we have to be in sync with others to be competitive as also to be an attractive investment destination. FICCI would, therefore, like to submit that corporate tax rate should be brought down to around 25%, which would be in line with the rates prevailing in other Asian countries, with which the Government is endeavoring to align.

 Fringe Benefit Tax (FBT)

Uniformity should be made applicable across the board in respect of deemed Fringe Benefits. Amount paid as FST should be allowed deduction under section 40(a), as even in a similar case of tax paid by the employer on any perquisite given to employee is presently allowed as deduction and FBT should be allowed deduction on the lines of taxes paid such as Excise duty, Stamp duty, Customs duty etc.

FBT payments are required to be made on a quarterly basis for actual expenditure. This determination become extremely difficult, especially for March quarter, which has to be deposited by 15th march. Also, it necessitates quarterly accounts closing.

 Hydrocarbon Sector

The growth of the industry as a whole largely depends on the easy availability of petroleum products at reasonable prices. The hydrocarbon sector participation is being encourages to meet the gap between domestic capacities and the estimated demand in the country.

 Housing Sector

The Government has now aptly revised the FDI policy and guidelines for the Housing sector. These have permitted FDI upto 100 per cent under the automatic route in a range of segments including townships, housing, built-up infrastructure and construction-development projects (which would include housing commercial premises, resorts, educational institution, recreational facilities, city and regional level infrastructure). This revised policy has given a major boost to the industry with several global investors started looking at India as an investment destination.