Mumbai: C Rangarajan, chairman of the prime minister's Economic Advisory Council (EAC), has suggested an upward revision of income tax slabs coupled with a downward revision of indirect tax rates to boost consumer spending and recharge the economy for a higher 2008-09 growth.

The EAC has suggested "some adjustments in income-tax slabs and so forth, but not any substantial reduction in tax rates," Rangarajan told newspersons after the council's pre-budget meeting with finance minister P. Chidambaram.

While keeping the basic taxation rates unchanged at 10, 20 and 30 per cent in the budget for the next fiscal, in the council's view there could be "some readjustment" in the various taxation slabs, Rangarajan pointed out.

While an upward revision in the income tax slabs would leave more money in the hands of the taxpayers, Rangarajan said, slashing excise duties on consumer durables would stimulate demand for consumer goods.
 
Although the EAC pegged economic growth at 8.5 per cent in the next year, it wanted an increase in public investment to impart additional growth momentum to the economy. "Our view is that the economy will grow at 8.5 per cent in the next year, but there are weaknesses in some areas, for instance, in the manufacturing sector," Rangarajan said.

Rangarajan, meanwhile, stressed the need to moderate tax exemptions and concession to SEZs being set up in the country.

Speaking at a seminar on "Indian economy challenges and opportunities" in Vadodara, he said, the idea was to give tax concessions and not exemptions for SEZ.

A study by brokerage and investment banking firm CISA has said while tax receipts are increasing and fiscal deficit decreasing, many are arguing that India cannot afford the loss of tax revenue from export business growth in SEZs, he pointed out.

The revenue loss from SEZs could be over $25 billion against the earlier estimate of $23 billion for the period of 2007-10, according to the report.

Rangarajan said the hike in fuel prices is modest and will not have a large impact on inflation.