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Reduce income tax rate to boost demand
May, 14th 2009

Industrialists urged finance ministry officials on Wednesday to slash the highest personal income tax rate by 5% to 25% in the forthcoming budget to boost consumer spending and revive the industry which contracted 2.3% in March.

In a pre-budget meeting with Revenue Secretary P V Bhide, a delegation from industry chamber Federation of Indian Chambers of Commerce and Industries comprising its president Harsh Pati Singhania and Bharti Enterprises vice chairman and MD Rajan Mittal pressed for reduction of personal income tax and corporate tax to 25%.

Now the maximum income tax rate of 30% applies on income above Rs 5 lakh. The apex rate should apply over an income of Rs 10 lakh, the chamber said. This will leave more money in the hands of people to encourage consumption spending. Corporate houses are taxed at 30%.

Mr Singhania also favoured broad-based fiscal reform measures to push investment-led growth. He however, admitted that there is little scope for more tax sops considering the governments weak financial position. "This year, there is a particularly difficult situation with revenue deficit being there and I think the government has limited scope for doing things," Singhania told reporters after meeting Revenue Secretary P V Bhide.

The new government which may be in place soon is likely to present the final Budget in the next two months. The outgoing UPA government tabled the interim budget in February and sought the Parliament's nod to spend money to meet expenditure till July.

The delegation also demanded incentivising investments in agriculture sector, continuation of tax benefits for the housing, telecom and power sector. In a bid to promote capacity expansion, it has asked for introduction of investment allowance and restoration of depreciation rate of 25%. At the same time, it is important that excise duty at 8% and service tax at 10% are continued at least till the next fiscal, Mr Singhania said. The tax holiday benefit period for IT and software sector should be extended beyond 2010, he said.

On indirect tax, he said the government should reduce customs duty on natural rubber from the current level of 20% to 7.5%. The chamber also favoured the reduction of central sales tax to 1% from 2%.

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