The upcoming Budget for 2016-17 would focus on tax rationalisation and simplification besides providing a level-playing field to domestic manufacturers to facilitate Make in India, hinted revenue secretary Hasmukh Adhia on Wednesday.

With a fortnight to go for finance minister Arun Jaitley to present the Budget, Adhia said the focus should be on promoting growth and employment.
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"The focus of the Budget should be on tax rationalisation and simplification. …promoting growth, employment and providing some sort of level-playing field to domestic manufacturers so that the Make In India can happen," Adhia said in the finance ministry's YouTube video.

On the need for phasing out of corporate tax exemptions, which cost the exchequer about Rs 2 lakh crore annually, Adhia said the move was necessary to provide a level-playing field to domestic manufacturing companies even though completely eliminating those was not possible.

"Exemptions create inequity, between the existing unit and the new unit which is availing itself of the exemption and it also creates inequity in terms of smaller companies and bigger companies," he said.

The government is expected to cut corporate tax rate by a small percentage point in the upcoming Budget as part of its plan to reduce it to 25% from 30% in four years, as promised in the Budget for 2015-16. Towards that, the Budget will also lay down the roadmap to simultaneously phase out exemptions given to the corporate sector to reduce the tax rate, simplify administration and improve India's competitive edge globally.

"We cannot completely eliminate exemptions... If we are able to reduce the number of exemptions, then the amount we are losing in exemptions we would be in a better position to reduce taxation rates," he said.

Adhia said that reducing exemptions would enable the government to reduce income tax rate and give a fair deal to taxpayers. "In direct tax, we are losing about Rs 1 lakh crore in these exemptions. The cause maybe noble, but it distorts the taxation system. In the case of indirect tax also, we are almost losing Rs 1 lakh crore because of various exemptions given for SEZ, EOU."

The tax department has already come out with a draft roadmap for phasing out tax exemptions, and the final roadmap would be unveiled in the Budget.

Adhia said removing the exemptions would also help in improving the tax-GDP ratio, which is currently around 10 percent. "There is a need to increase the tax-GDP ratio but you also have to see the capacity of people to bear that kind of taxation burden. If we simply rationalise the taxation system and remove the exemptions, I am sure the tax to GDP ratio can be enhanced substantially," he added.

In order to attract foreign investment, Adhia said there was a need to do away with multiplicity of central and state government levies and the only solution to this was the GST. The Goods and Services Tax would usher in an unified indirect tax regime, which will subsume various levies like excise, service tax, sales tax and octroi.

Adhia said the tax department was making efforts to reduce litigations. At present 340,000 litigations are pending in direct taxes and another 136,000 in indirect taxes.

"We have to rationalise our taxation laws, we have to simplify them, we have to have a predictability in tax regime, a kind of certainty. These are things, which are required when it comes to taxation, then the investors would be interested in coming to our country."

He said administratively there was readiness to implement the GST. The Budget session, which is to take up the constitutional amendment Bill, is likely to be stormy.

Adhia reiterated that the shortfall in direct taxes to the tune of Rs 40,000 crore would be made up by robust collection in indirect taxes and the total tax collection target of Rs 14.5 lakh crore for the fiscal would be met for the first time in five years.

In the current fiscal so far, direct taxes have grown 11 per cent as against a 33 per cent growth in indirect taxes, he added.

Adhia said the income tax department was trying to widen its tax base as currently 3.5 per cent of total population pays the income tax.