Economists favour no deduction in direct tax rates

“Taxes should not be cut because of fiscal stress�, advised economic experts to Finance Minister P Chidambaram before beginning a pre-budget session in the parliament.

In a group meeting of financial and economic experts includes top executives of several financial organisations have urged the finance minister not to slash tax rate from direct, corporate and personal income tax for balancing economy infrastructure from a uprising economy to rationalise the fiscal stress point in the offing. The meeting was held on Wednesday at north block in New Delhi.

This suggestion came against Finance Minister's indication of chopping tax rates in direct, corporate and personal income tax as the last weak statement of finance minister said, “The rates can be moderate, if voluntary compliance increase.�

“We are in a situation of relatively comfortable growth and inflation numbers. Interest rate increase is ruled out; choice is between status quo and cut. Finance Minister should use this revenue for improving infrastructure expenditure and rationalise indirect taxes ", said Dr Subir Gokaran, the chief economist of Standard and Poor (Asia Pacific).

“There are a number of fiscal stress points in the offing, like oil bonds, market stabilisation bonds and pay commission. But it is not prudent to take this as a permanent change in the tax-GDP ratio,� he added.

“The infrastructure in oil sector should improve through using this huge revenue in spite of cutting the tax rates,� advised experts. The tax composition in oil price is as high as 57 per cent.

“The coming Pay Commission and certain off-budget liabilities that would exist in the next couple of years might put huge stress on the economy that can shake the economy infrastructure of the country, so this revenue can heal the economic infrastructure�, suggested economy pundits.

“The ripping in indirect taxes on oil products would have neutral impact on consumer and also give more relief to oil industry,� said Rajiv Kumar the Chief Executive of ICRIER. “There is no evidence to show that further reduction of tax rates would lead to greater revenues.� he added.

In the context of rupee appreciation, Rajiv said, “We have told the Finance Minister that he should take a pause on customs duty in this budget as rupee appreciation has already helped in reducing the value of imports.� “A Tobin tax like levy has also been suggested on inflows into real estate and equities to reduce the returns on inflows into such areas,� he said. “The suggestion has already been made in this context�, informed Rajiv to media.

The economists have also suggested Chidambarm on research and development work to provide direct subsidy for R&D efforts despite of providing allowance.

“Government should use vouchers for making more efficiency in providing subsidy in spite of increasing it�, said Rajiv Kumar.