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Rationalise direct taxes to mitigate slowdown effects
February, 15th 2010

The Confederation of Indian Industry (CII) has urged the government to rationalise direct taxes which would help consolidate the manufacturing sector, mitigating the effects of the global slowdown, and also facilitate its transition to the next level of growth.

"Rationalisation in direct taxes is among the critical policy instruments with which the government can help the manufacturing sector to consolidate its position not only to mitigate the effects of the global slowdown but also to facilitate its transition to the next level of growth," the CII said in a statement.

While the current growth figures are encouraging, account needs to be taken of the fact that the impressive numbers are owing to a low base in December 2008 when there was a 0.2 percent decline in output, the CII said.

India's Index of Industrial Production (IIP) grew 16.8 percent in December last year while it was 11.7 percent in November and 10.3 percent in October. The manufacturing sector saw its output surge 18.5 percent during December last year, according to official figures.

The industry body also urged  substantial rationalisation of the Minimum Alternative Tax (MAT) to promote investment.

MAT was introduced by the government to counter the rapid increase in the number of zero tax companies arising out of tax exemption, deduction and higher depreciation and also widening the tax net. The rate has been increased gradually to reach 15 percent last year.

"We feel that such a high rate of MAT dilutes the intended incentives available to industry," the CII said.

The CII also stressed on the need to boost investment and employment through fiscal incentives at a time when non-food credit is growing at a rather conservative pace of 15 percent compared to around 30 percent before the onslaught of the slowdown despite enough liquidity in the system.

"The upward pressure on interest rates with growing tightening of the monetary policy further justifies the need for investment- linked fiscal incentives for the sector," the CII said.

Besides this, the CII has also urged Finance Minister Pranab Mukherjee to address the concern of  industry with regard to complexities involved in tax payments, which raise monetary and non-monetary cost of compliance.

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