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Multiple Taxation Needs to Go
June, 23rd 2009

The global economic scenario in the last couple of months has given a great learning for all organizations on streamlining their business as well as finances. CFOs today are looking forward to the budget with great expectations from government as a positive budget would further bolster the economy.

One of the major impacts of financial crisis is loss of confidence across the board. Everyone today is withholding spending decisions. Two stimulus packages announced by the government in the month of December and January, respectively, worked to a great extent in bringing back confidence. Besides, Congress' thumping win has also resulted into increase in confidence level at large.

Simplifying of taxes and making one single tax by merging all elements is also necessary to avoid duplication and reduce paper work and precious time. Also there is an urgent need to bring down the overall tax from peak of 34 percent to 30 percent. This tax is not in line with other developed / developing countries like Singapore, and Hong Kong.

To help the working professional community and the corporate world, taxes such as Fringe Benefit Tax (FBT) should be on a priority for removal. Alternatively, certain heads of expenses to be removed from applicability of FBT, wherein there is no linkage between employer-employee relationship like - sales promotion and advertisement, use of telephones / mobiles, festival celebrations, use of guest house, tour and travel including foreign travel, conveyance expenses, repair, maintenance of motor cars and FBT on ESOPS. Introduction of uniform rate of TDS on all services subject to tax so that it is easier for assessee.

Further since it was introduced in 1989, increase in cash sales limit from Rs. 20K to Rs. 50K as over a period of time rupee value depreciated and value of goods have gone up. To overcome the growing menace of Chinese products in India, there should be an excise duty exemption extended to CD/DVD unrecorded like other IT products covered under ITA. This will help domestic units fight with Chinese material getting dumped in our country.

The Special Additional Duty (SAD) of 4 percent should be abolished, as this is revenue neutral levy it needs to be abolished to reduce the work load of importer. Apart from this, there is huge working capital get blocked due to delayed clearance of SAD claims of importers.  Alternatively importers should be allowed to adjust the SAD against the future duty payments. Calculation of education cess needs correction. In present system is levied twice. Simplified procedure needs to be introduced to avoid double calculation.

The Finance Minister also need to look in systematically abolishing multiple taxes like CESS, Octroi, Entry taxes in various states and cities keeping in mind an alternate mode of income generation is developed. There is also an urgent need for systematically abolishing way bills road permits, etc, which is just creating hurdles for business growth as well as giving a chance for more corruption.

In the case of software under the State VAT law supply of software as well as acquiring right to use the software (packaged or customised) gets covered for levy of VAT. However, with the introduction of Information Technology software service w.e.f. 16-05-2008 such transactions are also covered for the levy of service tax. Due to the coverage of software (packaged as well as customised) under the service tax law and state VAT law, treating them as services as well as goods respectively, these are prone to double taxation. In order to avoid dual taxation and unwarranted litigation, the definition of software should be suitably modified under service tax law, so as to make distinction between software as service and software as goods.

Suitable amendment be carried out in respect of Service Tax credit for trading activities. Since trading activity is non dutiable activity and do not fall under taxable services mentioned by act - benefit of availing credit be extended to trading units.

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