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Union Budget 2009-10 should be 'Investment Budget' : CII Print E-mail
Written by Anand   
Tuesday, 02 June 2009
CII presents its recommendations on the Union Budget 2009-2010 to Finance Minister

New Delhi: Fiscal Prudence, Capacity Creation, Promoting Investments and Fueling Consumption are the major areas of focus of CII’s Pre-Budget Memorandum for the year 2009-10 presented to the Ministry of Finance. Given the severity of the Global economic slowdown. This was articulated by CII President , Mr Venu Srinivasan during his meeting with the Finance Minister , Mr Pranab Mukherjee,  here today.

CII’s Pre-Budget Memorandum, presented to the Ministry of Finance, recommended that Budget 2009-10 should be an ‘Investment Budget’ to enable India to deal with the global economic crisis.

Action would need to be taken on fiscal prudence, capacity creation, promoting investments and fuelling consumption, stressed the Memorandum, adding that external forces are unlikely to provide a facilitative environment for India’s economic growth in the near future, and that the impetus for the economy would need to originate internally.

Mr Chandrajit Banerjee who was also present at the meeting said that the uncertainty surrounding the prospects of global economic recovery clearly indicates that all efforts for reviving growth in India require building internal momentum.

Revival of Economy and Fiscal Prudence Top Priorities

Notably, recognizing the stress on fiscal situation, CII has not called for lowering of key excise and direct tax rates. Instead, it emphasizes that India needs to undertake large ‘Innovative India’ investments in physical and social infrastructure that would accelerate internal growth momentum, so that Gross Capital Formation in Infrastructure reaches 11% of GDP by 2011-12. Further, an infrastructure monitoring and implementation agency needs to be set up to raise efficiency of expenditure, suggested CII.

Pre-Budget Recommendations Call for Capacity Creation in Knowledge, Infrastructure, Technology

The CII Memorandum additionally emphasized promoting investments by sending a clear message to investors that India’s tax policies are consistent and have continuity. Investment allowance should be re-introduced to encourage front-loading of investments. However, to simplify and streamline the tax structure, CII suggests that surcharges, cesses, FBT and MAT should be abolished.

To fuel domestic consumption as a growth accelerator, the CII Memorandum calls for easing individual tax exemption limits by a further Rs 50,000 and removing retirement fund limits.  It suggests that limits allowed under section 80C to Individuals and HUF should be raised to Rs. 2 lakh, provided the additional Rs. 1 lakh savings is in infrastructure bonds.

The Budget should also continue the focus on education and skill development, which have been highlights of previous Budgets, stressed CII. In particular, allocation for the National Skill Development Corporation could be increased to kickstart new initiatives for youth. In addition, technological capital needs a boost through increasing the R&D expenditure to at least 1% of GDP. To encourage companies to undertake in-house scientific research and commissioned R&D, the weighted deduction of 150% of the expenses incurred on scientific research should be extended to all sectors for a further period of at least 10 years.

CII suggests that additional public funds for these initiatives could be mobilized through disinvestment in select PSUs, attracting foreign exchange by issuing sovereign-backed bonds, and widening the tax base as well as maintaining the pace of efficiency in tax collection. The Government could consider setting up a task force for examining widening of the tax net for corporates and individuals without increasing the tax burden on existing assessees. Tapping of black money in the economy as well as overseas needs to be addressed, while redirecting non-merit subsidies to productive investments for asset creation could also be considered, added CII.

The key direct tax recommendations of the CII memorandum include increasing depreciation rates for plant and machinery from 15% to 25%, and introducing an Investment Allowance package for businesses for cost savings. For export units, removal of sunset clause for STP units under section 10A and EOU under section 10B is suggested. Credit Linked Subsidy Scheme (CLCSS) for Technology upgradation for MSMEs needs to continue and be extended for all possible technical upgradations / modernisations

The CII memorandum also suggests that an alternative dispute redressal mechanism be established at the earliest. Any anti-avoidance measures to prevent abuse of tax treaties, which involve changes in existing tax basis or positions, should be made effective prospectively after giving sufficient lead time for the company to exit.

On indirect taxes front, the CII memorandum strongly stresses that Goods and Services Tax should be implemented on schedule on April 1, 2010, adding that a single unified rate of 12% would spur creation of a unified single market. In preparation for introduction of GST, CST rate should be brought down to 1%.

Further, there should be no change in peak customs duty at 10%, given current global economic slowdown. The CII submission recommends reduction of customs duty from 5% to NIL on non-coking coal, petroleum coke and scrap of copper, zinc & lead, reduction of customs duty from 5% to 2% on naptha and liquified propane and reduction of customs to NIL on inputs used for manufacture of orthopedic implants.

The CII memorandum also calls for continuation of 8% excise duty in general and reduction of excise duty from 16% to 8% on medicines covered under Medical and Toilet Preparation (M&TP) Act. Service tax payment in case of comprehensive annual maintenance contracts should be simplified by charging on a specified percentage value of the contract.

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