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Economists suggest lower taxes, uniform import duty
December, 28th 2016

Ahead of the budget, economists have suggested lower corporate and personal taxes, fewer tax exemptions, a uniform import duty to address the inverted duty structure to encourage manufacturing and more steps to create a bigger formal economy by building on demonetisation.

The suggestions followed a meeting organised by the Niti Aayog on the theme 'Economic Policy – The Road Ahead' attended by Prime Minister Narendra Modi and Finance Minister Arun Jaitley.

In his intervention, Modi called for innovative approaches in areas such as skill development and tourism, a statement released by the government said. He also explained the thought behind advancing the budget that would be presented almost a month earlier than usual, saying under the current system the authorisation of expenditure comes with the onset of the monsoon.

This results in government programmes being relatively inactive in the productive pre-monsoon months, he told economists. The budget is likely to be presented on February 1 this year rather than end February.

The railway budget has been absorbed into the main budget. The Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC) should not work in silos and share data, Niti Aayog Vice Chairman Arvind Panagariya cited Modi as saying while briefing reporters about the meeting.

If someone sees that his or her tax revenue is used to build, say a hospital, nobody will hesitate to pay tax, but when expenditure is not properly done, then people want to evade, Panagariya said, mentioning the PM’s intervention.

"Experts suggested reducing corporate and personal income tax, and removing exemptions to simplify the tax regime," Panagariya said. Before the meeting with Modi and Jaitley, three separate groups of economists deliberated on agriculture, skills, jobs, education and the budget with a mandate to make specific suggestions to the prime minister.

The economists and experts who attended the meeting included Pravin Krishna, Sukhpal Singh, Vijay Paul Sharma, Neelkanth Mishra, Surjit Bhalla, Pulak Ghosh, Govinda Rao, Madhav Chavan, NK Singh, Vivek Dehejia, Pramath Sinha, Sumit Bose and TN Ninan.

Economists suggest lower taxes, uniform import duty

The economists recommended simplification of taxes and better coordination between the data bases of the tax department's two arms— CBDT and CBEC. On indirect taxes, the suggestion was to unify customs duties across the manufacturing sector to about 7 per cent to prevent inverted duty structures.

This would also ensure no loss of revenue. "The tariffs on components and inputs can be higher than the tariff on the final products. So that undercuts the incentive to produce the final product," Panagariya said.

The suggestions came in the wake of a pre-budget meeting earlier this month in which industry bodies had sought rationalisation of income tax slabs and reduction in corporate tax to about 18 per cent.

Finance minister Jaitley has said lower tax rates are possible in the future as higher revenue gets generated by a cashless system that will allow transactions to be tracked, following the government's demonetisation drive.

Even though the aspect of digitisation to promote it a ‘less-cash’ economy figured in Tuesday’s meeting, experts didn't delve deep into the impact of demonetisation on the economy. Besides budget-related matters, experts and senior government officials also discussed issues related to agriculture and job creation.

Farm sector experts suggested incentivising states to undertake market reforms, create a corpus for promoting farm mechanisation and micro irrigation, and provide interest subvention for term loans so that farmer incomes double by 2022.

Suggestions were also made for listing of state-owned companies and increased use of direct benefit transfers. Experts also suggested that there is a need to invest in the tourism sector, which has the potential to generate high-paying jobs and making Indian universities world class.

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