Industry leaders, in a pre-Budget with Mr. P Chidambaram, said, that in order to boost entrepreneurship in the country, the government must re-look at the possibility of considering not to impose higher taxation regimes on individuals with high income. They also said that high income tax, would in a way discourage entrepreneurship. They would like to see an early implementation of the Goods and Service Tax while also continue the current corporate tax rates.
The meeting was attended by Industry greats along with prominent members of industry bodies like FICCI, CII and Assocham. . The industry bodies also cautioned, that some steps need to be taken by the government to encourage capital formation and not implementing the Inheritance Tax could be a step towards the same. They said that taking such steps would mean penalising the savings and discourage investments.
Higher tax rates specially on taxpayers with high income, would not only discourage entrepreneurship, but also lead to exodus of high end and much in demand professionals to low tax regions of the world like Dubai, Singapore, or even London. This was stated by current FICCI President Ms Naina Lal Kidwai.
FICCI has recommended that the current rate of 30% on personal income tax, be levied on an income of INR 20 Lakhs and above, against the current INR 10 Lakhs threshold.
The amendments made in the tax structures and rules last year, has already shaken the confidence of the investor.
Mr. Rajkumar Dhoot, the current Assocham President also added thatit is ok to tax the rich, however, it has to be reasonable. The money the rich have helps generates investments and revenues for the country in the form of excise and sales taxes. Furthermore, they also create jobs.
Mr. Adi Godrej, CII President said that any further or unreasonable increase in taxes on the rich will only create negative perception about investments in the country and currently needs to be avoided.Higher tax rates does not necessarily mean higher collections, instead it will only create a negative impact on the investor sentiments and eventually on the growth of the economy.
Having a high tax rate and implementing inheritance tax is normally done in developed countries. There use to be a time when the taxes were as high as 90 % ; the growth then was 3%only. It is well known that lower tax rates leads to increase in absolute collections.
Naina Kidwai also added that the Central and state Governments must decide and have a clear plan and timelines for the implementation of the Good and Services Tax (GST) .
There is a consensus among the industry heads that it is imperative that the GST must be implemented as early as possible. The draft legislative framework must be brought to the public domain early, as this will allow the industries to study the impending impact and help gear up for a faster and smoother transition to the new tax system . If the GST is implemented early, it will also resolve pending issues related to the amendment Bill placed in the Parliament in March 2011.
