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Hema Ramakrishnan

NEW DELHI, Dec. 22

THE BJP has decided to go all out to win back the confidence of India Inc and not just the salaried middle-class, which is its traditional vote-bank.

The Rajnath Singh Committee, constituted to examine the Kelkar panel's recommendations on tax reforms, had backed India Inc's demand for abolition of dividend tax at the hands of the shareholders and tax on distribution of dividends by companies.

It had also recommended continuation of accelerated depreciation benefits to bolster investments in the industrial sector, said party sources.

The second suggestion is an outright rejection of a crucial recommendation made by the Kelkar panel to align depreciation rates under the I-T Act with those under the Companies Act.

While the recommendations of the Rajnath Singh Committee will be discussed at BJP's two-day National Executive meet beginning here on Monday, indications are that the final report of the Kelkar panel on direct taxes will be a watered down version of the consultation paper.

The Kelkar panel had reckoned that the divergence between taxable income and book profit "undermined corporate governance" and there was a need to redesign the corporate profits tax so as to align taxable income and book profit.

The panel, which proposed abolition of MAT of 7.5 per cent, also held that corporate profits would bear the full burden of corporate tax (the recommended rate of 30 per cent).

Currently, the depreciation rates in India vary from five per cent to 100 per cent. The rates are significantly lower, ranging between 2.5 per cent and 20 per cent in other countries. The objective of giving higher depreciation rates is to give more liquidity to companies, which would enable them to channelise funds replacing these assets. This incentive, however, adversely impacts the revenues of the exchequer.

While favouring a reduction in the corporate tax rate, the Rajnath Singh Committee has made out a clear-cut case for continuing with the 10-year tax holiday for telecom service providers and other infrastructure facility providers under Section 80 IA and 80 IB and to tax deduction on income earned by units in Special Economic Zones under 10 A and 10 B of the Income-Tax Act.

The committee's report - divided into three sections - also gives specific suggestions on plugging the loopholes in tax collection and recovery of tax arrears.

For I-T incentives

KEEPING in view the impending Assembly elections next year, the Rajnath Singh Committee has rejected several recommendations made by the Kelkar panel on the removal of income-tax incentives for individuals - including standard deduction, tax rebate available on investments in designated small savings instruments (Section 88), Rs 15,000 per annum rebate for senior citizens (88B) and rebate for women tax payers (88 C).

The proposals made in the consultation paper to tax farm income (of non-agriculturists) through a Constitutional amendment and phase out tax deduction on interest on housing loans too have been shot down.

The committee has not given any specific suggestions on the rate structure per se, even as it has favoured a lowering of the marginal tax rates for individuals and enhancement of the I-T exemption limit.

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