FICCI urges government to initiate new reforms in budget

The UPA government, battling a sharp fall in industrial production and weak investment sentiments, should use the budget as an instrument to initiate new reforms and to energise growth, an industry lobby told the finance ministry.

A delegation by the Federation of Indian Chambers of Commerce and Industry (FICCI), which met R S Gujral, the finance secretary, at a pre-budget meeting in Delhi, said it is necessary to cast the direct tax net wider. It also called for a one-time amnesty scheme to encourage Indians to bring back their overseas wealth.

The delegation, led by FICCI president Harsh Mariwala, also suggested that fiscal pressure could be eased by privatising coal mines. Referring to tax proposals, Mariwala said the instrument of direct taxes should be used effectively to promote investments.

The tax administration needs to be made assessee-friendly to improve compliance; investment allowance should be restored to enthuse entrepreneurs and motivate them to undertake productive investments that otherwise may not materialise; the cascading impact of Dividend Distribution Tax should be removed; and the depreciation rate restored to 25 per cent.

The FICCI delegates also urged the government to rationalise the minimum alternate tax (MAT) rate from a high of 20 per cent to a more reasonable level. It also called for streamlining transfer pricing regulations, introducing safe harbour rules for captive business process outsourcing, called for guidelines to recognise approaches for evaluating arm's length character of transactions involving marketing intangibles, and suggested the introduction of appropriate guidance on pricing of inter-company funding.

The members also urged the government to encourage R&D activities by ensuring that the amount of weighted deduction should be deductible while computing tax under MAT. The weighted deduction benefit, which expires on 31 March 2012, should be extended for another five years, and all expenditures related to research – whether involving in-house facility or outside approved facilities – should be eligible for weighted deduction.

Referring to the plunging rupee, the FICCI members said that losses on account of foreign exchange should be allowed as revenue expenditure, including unrealised, year-end, mark-to-market losses. Forex derivative and hedging transactions should be specifically excluded from the definition of speculative transaction, the delegates suggested to the government.

On the indirect tax front, the FICCI members said alternate measures in lieu of refund mechanism should be introduced to ensure that refund is granted in a time-bound manner. Show cause notices should be adjudicated within a defined/prescribed timeframe.