Economists root for tax reforms

RUN-UP TO BUDGET 2005

Economists today pitched for speeding up tax reforms and asked the government to focus on attracting more foreign direct investment (FDI) in order to sustain a GDP growth rate of over 7 per cent.

They also suggested a reduction in the peak Customs duty to 5 per cent over the next four years besides a decrease in the nominal rate of personal income tax.

At the pre-Budget meeting with Finance Minister P Chidambaram, some economists also suggested the use of foreign exchange reserves as a "comfort" mechanism in infrastructure could trigger positive multiplier effects. They also proposed that wages in the employment guarantee scheme be kept lower than market rates.

"The Budget should be friendly for both public and private investment. Also, while there should be a differential policy for FDI and foreign institutional investment (FII), the government must encourage more FDI," BB Bhattacharya, director, Institute of Economic growth, told reporters.

ICRIER Director Arvind Virmani said economists asked the government to focus on infrastructure and suggested the simplification of the tax structure particularly the personal income tax.

"Another interesting suggestion made was that the government should focus on skill generation. There is no certification of skills, which if introduced, could help improve the quality of employment," he said.

The meeting was attended by Surjit Bhalla, managing director of OXUS Fund Management, Suman Bery, director-general of the National Council of Applied Economic Research, Bibek Debroy, director of the Rajiv Gandhi Foundation, Subir Gokarn of Crisil and Ila Patnaik of the Indian Express.

The other suggestions included targeting subsidies and increasing the pace of reforms in the excise structure, which were initiated way back in 1986.

The economists said there should be a single uniform VAT rate and efforts should be made to improve compliance and generate more revenue.

They also sought a review of tax relief to NGOs. They said that achieving FRBM targets required equal emphasis on expenditure reduction, particularly on current projects and subsidies, along with revenue enhancement.

They suggested capital account convertibility be considered, and lowering of procurement prices along with appropriate tax, tariff and monetary policies, besides drawing up of a profitability road map for 8 to 10 major crops.