Strengthen people, rural economy & competitiveness in Budget'08-09:CII

Building people, strengthening rural economy and enhancing competitiveness are the key focus areas of CII's Pre-Budget Memorandum for the year 2008-09. CII believes that focus on the above key areas is necessary to aid inclusive and sustainable high growth. CII strongly feels that focus on the above three areas could help India transform from a labour arbitrage economy to knowledge arbitrage economy.

To tackle the emerging shortage of skills in the Indian economy, CII strongly feels that building India would need attention towards, skills development, employability and healthcare. CII in its Pre-Budget Memorandum for the year 2008-09 has suggested measures to encourage industry to invest and organise in-house training programs and to complement the efforts of formal education sector CII proposed that expenditure incurred by the industry in initial/induction training, re-training, re-skilling programs be treated at par with R&D expenditure eligible for deduction from income tax at 150%. Further, in order to enhance health care services delivery,

CII has strongly recommended tax benefits under section 80IA of the Income Tax Act.
On strengthening the rural economy, CII recommended that Agriculture and allied sector of the rural economy need increase in investments and productivity enhancements. CII strongly feels that the poor physical and financial infrastructure facilities block the effective use of available inputs and farm services for higher productivity and hence to sustain Private Sector Participation in this area, CII recommends permission for functioning of the private sector on a commercial basis with some tax incentives could complement the government efforts to enhance the availability of farm inputs as well as extension services.

Further to encourage break-through technologies in agriculture and allied sectors, CII feels that Agricultural research resources in the public domain in India need to be closely managed and incrementally funded with private sector participation. Tax incentives for R&D in agriculture and allied sectors including food processing under Section 35(2AB) of Income Tax Act are some of the tax measures suggested for strengthening the rural economy

On enhancing competitiveness, CII recommends favorable taxation policy to encourage R & D by extending R&D benefits to all sectors under section 35(2AB) of the Income Tax Act and reduce the overall tax burden to provide greater stimulus to GDP growth in general and to manufacturing in particular.

The other major direct taxation recommendations of CII's pre-budget memorandum are (i) abolition of levy of surcharge on corporate taxes, (ii) abolition of dividend distribution tax or alternatively, reduce the dividend distribution tax rate to 5 % along with re-introduction of section 80M, (iii) abolition of MAT or alternatively the MAT rate should be brought down to 5%, (iv) exclusion of deeming provision of treating a portion of pure business expenses as personal expenses under Fringe Benefit Tax and to only consider the element of personal benefit to employees for taxation under fringe benefit tax, (v) encourage corporate restructuring by providing benefits under Section 72A of the Income Tax Act, (vi) provide relief and encouragement to exporters by reintroducing deductions available under sections 80HHC-80HHE of the Income Tax Act, (vii) to encourage availability of risk capital, extend pass through benefits under section 10 (23FB) of Income Tax Act to Private Equity and Venture Capital
Funds for investments in all sectors, (viii) to encourage investments in infrastructure, re-introduce section 10 (23G), which allowed tax exemption on interest income and capital gains from infrastructure lending and investment and (ix) CII suggested the distinction between trading and investing activity while calculating capital gains tax by considering a holding period of less than 15 days as capital gains from trading, a holding period of 15 to 179 days as short term capital gains and any holding period above 180 days or more to be considered as long terms capital gains.

The major indirect taxation recommendations of CII's Pre-budget memorandum on indirect taxes include continuation of the existing peak rate of custom duty of 10% as imported goods have already become cheaper by 10.35 percent due to appreciation of rupee against US $ since 1st March 2007. In addition, CII has recommended removal of anomalies in custom duty structure wherein duty rate on inputs is higher than duty rate on finished products. CII has also recommended custom duty reduction on various fuels i.e. reduction of duty rate from 10 to 5% on fuel oils like furnace oil, LSHS etc., and reduction of custom duty from 5% to 2% on metallurgical coke with ash content below 12%, non-coking coke and petroleum coke. The other CII recommendations include reduction of custom duty 5% to 2% on naptha and liquefied propane, which are the basic feed stocks from petrochemicals.

On Excise Duty, CII recommended reduction of the CENVAT rate from 16% to 14%. CII has also recommended reduction of excise duty from 16 to 8% on certain goods such as processed foods, pesticides, drugs & medicines etc. In addition, CII also suggested reduction of excise duty from 24% to 14% on cars, multi-utility vehicle and petrol driven goods transport vehicles.
On Service Tax, CII has recommended bringing more services under the tax net to broaden the tax base. However, CII has asked for exemption of service tax on Exploration & Development and Production activities related to oil and gas, construction activities for infrastructure and Trade & Industry Associations. In addition CII has sought exemption of service tax on input services availed by merchant exporters by refund mechanism.

In case of Central Sales Tax, CII has recommended reduction of CST rates from 3% to 2% w.e.f. 1st April 2008 to phase out CST to facilitate transition to Goods & Services Tax (GST) and inclusion of natural gas in the list of "Declared Goods". CII has also requested for announcement of suitable GST model as a next step to implement by 2010.