Vijay Kelkar, advisor to the finance minister, called for lower corporate taxes and a lower customs duty on Monday.
However, he warned that lower tax income to the government would have to be made up with higher borrowings. He also said he would like to see lower rates on corporate taxes, especially on what he called 'risk capital.'
Kelkar said that import duties should be compressed, so that there would be little gap between different levels of import duties. This would reduce disputes on what are intermediate and what are final goods.
Kelkar was addressing a meeting of the CII's manufacturing council, in which representatives of different associations and committees and divisions affiliated to CII were present. The meeting took place in Mumbai.
He warned that if the government were to accept all the requests for lower excise and customs duties, it would suffer a revenue loss of Rs 30,000 crore (Rs 300 billion).
The government would recoup this loss by borrowing more. This would result in higher interest rates for all borrowers. He made it explicit that there was 'no free lunch.'
Kelkar emphasized that his report had been guided by three principles. The first was to promote transparency, the second was to make taxes simple, and the third was to reduce transaction cost.
He said that transparent tax policies were needed to reduce rent-seeking, crony capitalism, and exemption-seeking.
Kelkar added that he agreed that the classification of products into inputs, intermediates, and outputs could be open to disputes.
He also requested industry to recognize the fiscal stress that state governments were facing, and their urgent need to raise revenues.
Responding to requests, Kelkar has promised to look at how to ensure that energy efficient products such as pumps and lights do not end paying the highest duties, as compared to other kinds of pumps and lights.
Earlier, the manufacturing council reviewed the latest ASCON Industry Monitor, which has shown a broad-based improvement in industrial production, with many more sectors showing higher production and exports in the nine months to December as compared to the previous year.
This was a special interaction with Kelkar, because for the first time, representatives of so many industry associations could meet Kelkar together and he too could hear their views.
This group also uniquely represents sectors such as steel and capital goods which have a supplier customer relationship.
Many of those who met Kelkar stressed the need to ensure lower costs of infrastructure to make their industry more competitive; the need to ensure dereservation of SSI products; and that certain duties that affected them be modified.
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