FinMin hints at cut in tax rates

Tribune News Service

New Delhi, February 17

Indicating reduction in tax rates, the Finance Ministry today said the focus of the forthcoming Budget should be phasing out tax exemptions which cost the exchequer about Rs 2 lakh crore annually and promoting growth and employment.

“The focus of the Budget should be on tax rationalisation and simplification. The focus should be on promoting growth, employment and in terms of giving some sort of level-playing field to domestic manufacturers so that the ‘Make in India’ can happen,” Revenue Secretary Hasmukh Adhia said.

The Revenue Secretary’s statement on phasing out tax exemptions comes days before the Union Budget presentation on February 29.

Removal of tax exemptions, Adhia said, would enable the government to reduce income tax rate and give a more fair deal to people paying taxes.

“In direct taxes, we are losing about Rs 1 lakh crore in these exemptions. The cause may be noble, but it distorts the taxation system. In case of indirect taxes also, we are almost losing Rs 1 lakh crore because of various exemptions given for SEZ and EOUs.

“... Had we not given all these exemptions we would have been able to probably reduce the income tax rate and we would have been given a more fair deal to people in paying the same thing,” Adhia said in Finance Ministry’s YouTube channel.

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.

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

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

He said removing the exemptions would also help in improving the tax to GDP ratio which is currently around 10%.

“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 is GST. Goods and Services Tax would usher in a unified indirect tax regime which will subsume various levies like excise, service tax, sales tax, octroi.