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Scrap corporate surcharge, Central sales tax: Assocham

Our Bureau

NEW DELHI, Dec. 8

THE Associated Chambers of Commerce and Industry of India (Assocham) has called for amendments to the Income-Tax Act, 1961, which would place the dividend distribution tax on par with withholding tax and eliminate double taxation of the dividends distrib uted. Such a move would help augment FDI inflows into the country, according to chamber officials.

In their pre-Budget interactions with the Revenue Secretary, Dr S. Narayan, here, Assocham delegation held that a number of foreign investors are unable to avail tax credit on the dividend distribution tax as such taxes are not treated as withholding tax under the Income-Tax Act, 1961.

Assocham delegation claimed that this bottleneck was impeding foreign direct investment (FDI) inflows into the country. They also called for abolition of surcharge on the corporate tax rate and pointed out that the surcharge was initially intended to be a temporary levy only.

``After the levy of temporary surcharge two years ago and the hike in dividend distribution tax last year, India has become comparatively less attractive investment destination as most of the other countries seeking FDI have reduced their tax rates durin g the past few years,'' the chamber said in a memorandum submitted to the Finance Ministry here today.

The chamber representatives also told the Finance Ministry officials that top priority should be given to processed food industry and infrastructure development on the matter of according fiscal and non-fiscal support.

On the steps required for accelerated growth of processed food industry, the chamber has recommended that the marginal rate of excise duty on any agriculture or dairy based processed food item should not be more than eight per cent and that the sales tax should be pegged at four per cent.

Assocham has claimed that the increase in excise duty rate in last year's Budget from eight per cent to 16 per cent has adversely affected the growth of processed food industry, particularly of those products which bear high supply chain cost due to thei r perishable nature.

``There is a strong case for 10 years duty and sales tax exemption on all such processed food items to accelerate the growth of this industry,'' the chamber has said.

Assocham has also suggested that Central sales tax (CST) should be abolished and merged with sales tax to make India a single common market.

On widening of the tax base, the chamber has said that the tax net should be widened to cover the entire services sector at a modest tax rate of five per cent.

The fragmented approach of taxing selected services needs to be dropped and a comprehensive services tax structure should be implemented, the chamber has suggested.

The chamber has also pointed out that import duty on certain raw materials are still higher or the same compared to that of the finished products in which these materials are used.

Assocham has recommended that import duty on such raw materials need to be rationalised so that they do not exceed 60 to 70 per cent of the duty on finished goods in which such materials are used.