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Remove undue taxes, surchages on Indian Inc.: ASSOCHAM
November, 04th 2008

The paper submitted to the Government points out that Indian firms currently pay taxes that are amongst the highest in the world.

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) has brought out a 20-point approach paper for achieving 15% growth in the manufacturing sector, which seeks removal of taxes, surcharges, fringe benefit tax (FBT) and education cess to make it more competitive and sustainable.

The paper submitted to the Government points out that Indian firms currently pay taxes that are amongst the highest in the world. The tax rates for firms, inclusive of surcharge, education cess and a fringe benefit tax ranging between 4-6% amounts to 38%. This again is without considering the dividend distribution tax which Indian firms are liable to pay on dividends declared.

The industry chamber admits that there are exemptions on the tax front also, making the effective tax rate in some cases at around 20%. But apparently these exemptions are not available equally to each manufacturing sector and every geographical area. Most manufacturing sectors and units remain burdened with a 34% effective tax rate which needs to be corrected.

Releasing the Paper, ASSOCHAM Secretary General, DS Rawat, said that the tax structure is prohibitive to growth in the industry. There is a definite case for the removal of the surcharge. Typically surcharges are for specified purposes and for a period of time. But what tends to happen is that it becomes a levy charged for time immemorial.

He said, An important discrimination to the manufacturing sector is the exemption of tax on long-term capital gains through investment on the stock market. The manufacturing unit pays the corporate tax but investors in his company do not pay taxes. Similarly Foreign Institutional Investor (FII) does not pay any long-term tax and the short-term capital tax is only 10% but Foreign Direct Investment (FDI) has to pay the relevant corporate tax. The foreign investors take advantage of the tax differential and arbitrage between the two investment streams by generally preferring the FII route.

On issue of logistics, the Paper points out that connectivity between the agriculture and the manufacturing sector and various small  and  large  sub  sectors  like  the  food  processing  industry  can  be  the  engine  for  high employment growth. Thus, logistic facilities connecting the supply chain needs to facilitated at greater pace.

On trade policy approach, the Paper says that it should be to create an enabling business environment to promote large- scale  investment  for  expanding  manufacturing  capabilities  improving  competitiveness  and increasing higher value added exports through generic promotional methods

ASSOCHAM has also demanded diversification in the export structure in favor of technologically advanced products desires R&D activity by  the  Indian  industry.  Furthermore,  the  importance  of  building  indigenous  brands  through publicity  and  the  ability  to  market  a  product  under  own  brand  is  must  for  international competitiveness.

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