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February 10, 1999

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Cut direct tax rates, tax farm income: FICCI

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The Federation of Indian Chambers of Commerce and Industry has urged the Union government to further cut the direct tax rates to be commensurate with the cutting back of undue tax deductions. This will help achieve higher revenue earnings, the FICCI's executive committee said in its meeting in Bombay today.

The committee strongly felt that the government could easily earn high revenues and reduce fiscal deficit by bringing agricultural income into the tax net and by enlarging the corporate tax-base by reducing the excise duties that have a strong Laffer Curve effect (US economist Arthur Betz Laffer, who played a key role in shaping the economic policy of the US in the '80s when Ronald Reagan was the president, devised the theory that lowering tax rates would result in higher revenues). At present, only 3,500 companies pay 85 per cent of total excise duty amount collected by the authority.

FICCI president Sudhir Jalan said that the immediate strategy of the government should be to control fiscal deficit by reducing the interest burden which account for 4.6 per cent of the gross domestic product. This can be done by evolving a judicious policy by retiring debts by mobilising resources through disinvestment, committing a portion (say 50 per cent) of the oil pool surplus to retire oil bonds.

While timely completion of infrastructure projects should be given paramount importance, the government must undertake new infrastructure projects only after completion of the existing ones.

Jalan said that an important aspect of infrastructure development is adhering to strict financial discipline. Tolls collected from roads and cess imposed on commodities surcharges should be utilised strictly for the purpose for which they are levied and not for other things.

The future increase in the prices of diesel, petrol and petroleum products should be by way of cess and be dedicated to construction of roads, expressways and bridges, he said.

In a related development, the All India Association of Industries has said that the government should quickly consider reducing the rate of interest as it would stimulate investments, help reduce debt and contain fiscal deficit.

Fiscal deficit at 5.6 per cent is high. Planned expenditure rose by just 18.6 per cent while non-plan expenditure was even higher at 28.48 per cent. This needs to be controlled , the AIAI said.

If fiscal deficits are controlled and funds are used effectively, there will be no need for tough Budgets, Vijay G Kalantri, president of the AIAI said.

UNI

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