National

CII moots steps to fine-tune Finance Bill

By Our Special Correspondent

NEW DELHI APRIL 21. The Confederation of Indian Industry (CII) has suggested several measures to fine-tune a set of provisions in the Finance Bill 2002 before its enactment. These suggestions range from taxation of dividend, section 10A and 10B benefits, minimum alternate tax, rates of depreciation and non-compete fees, among others.

In a post-budget memorandum, the body representing the Indian industry recalled that the Government had announced certain fiscal incentives to promote the development of units sourcing energy from non-conventional sources. These incentives in the form of 100 per cent depreciation allowance did work and contributed to the development of non-conventional energy sources and encouraged private sector investments.

The CII pointed out that a reduction in the rates of depreciation to 60 per cent would impact investments in these areas. Actually, in view of the huge gap in demand and supply in the power sector, alternative sources of generating renewable power should be encouraged. Depreciation allowance should continue at the existing level of 100 per cent to promote alternative energy sources. This concession should continue for a few more years to encourage the use of pollution control equipment and environment friendly production processes.

Benefits available under section 10A and 10B of the Income Tax Act suffered yet another setback in the Finance Bill 2002. Restricting the fiscal incentive available under these sections to 90 per cent would have an adverse impact on not only the competitiveness of our exports but also on long-term tax planning, the CII said while suggesting that reduction in the fiscal incentives available to the exporters under section 10A and 10B should be restricted to this year only.

Proposing an alternative to the taxation on dividends, the CII said companies can continue with the 10 per cent tax on dividend and in addition companies would withhold tax at 20 per cent of the dividend and remit the balance to the shareholders. The tax so paid by the company and the withholding tax would be the final tax on the dividend.

The recipient would not be liable to pay any more tax on the dividend. Companies receiving dividend would be eligible for deduction under section 80M which would allow them to claim set off. Mutual funds should not be subject to withholding tax to avoid a cascading effect. FIIs would be taxed at a flat rate of 10 per cent by way of withholding tax. This would provide the Government revenue at 30 per cent of the dividend payment so that dividend could be treated on a par with interest.

Large investors would pay a minimum of 20 per cent of the dividend received by them as tax without any exemption so that horizontal equity is ensured. Small shareholders should be provided some exemption limit, say Rs. 2500.

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