The Economic Survey on Thursday sought sweeping tax reforms by way of phasing out all cesses and surcharges on taxes and elimination of various other levies such as the securities transaction tax (STT) and the fringe benefit tax (FBT), while advocating the introduction of a new income tax code.
Tabled in Parliament by Finance Minister Pranab Mukherjee, the Survey suggested a review of the commodities transaction tax a levy proposed in the Budget for 2008-09 but not notified.
In a list of suggested tax reforms, the Survey pitched for review and phasing out of surcharges, cesses and transaction taxes and urged the government to incentivise states to do the same with respect to stamp duties. Alongside, it also asked for rationalising the dividend distribution tax to ensure that the dividend payout is taxed in the hands of receiver.
How many of these prescriptions actually get reflected in the Budget for the current fiscal remains to be seen. Suggestions for some of these changes had come in from various stakeholders. While a surcharge at 10 per cent is levied on corporate income tax and on those earning at least Rs.10 lakh annually, India Inc. has been demanding elimination of the surcharges to render calculation of corporate taxes simpler while increasing the disposable income of the taxpayers.
As for the various cesses, education cess is levied at the rate of three per cent on all taxes. A cess of Rs.2 per litre is levied on petrol and diesel to fund national highways, rural development and State roads.
Stock market investors have also been seeking removal of STT of 0.125 per cent on every transaction in cash for delivery of shares.
The FBT, levied at the hands of the employer, was introduced in the Budget for 2005-06 as many of the perquisites were seemingly disguised as fringe benefits.
There have been demands for its removal or at least rationalisation.
The Survey sought introduction of the new Income Tax Code that results in a neutral corporate tax regime. It will replace the archaic Income Tax Act and thereby streamline the direct taxation structure.
The new code is also expected to come out with taxation structure with fewer exemptions.