Speech by Mr Onkar S Kanwar, Vice President, FICCI for the Session on Development of Investment Friendly Taxation

Welcome

Briefly Introduce the Speakers. We are really thankful to Shri Akhilesh Ranjan, Joint Secretary, Central Board of Direct Taxes for accepting our request to be the Guest of Honour at the session.

India achieved a major landmark when it switched to liberalize economic policies in 1991 and initiated efforts to accelerate industrialization and progressively integrate the Indian economy with the global economy. The shift to new economic policies was intended to restructure and rejuvenate country's trade and industry and initiates a structural reform of monetary and fiscal sector in a big way. A key element of the new industrial policy and an important component of the reform programme is the fresh approach towards investment and technology tie-ups. The policy changes announced are designed to attract significant capital flows into India on a sustained basis. These are also aimed at encouraging technology collaboration between Indian and foreign companies.

In India, studies in the past have shown that there is a direct co-relation between the quantum of investment made and the rate of growth. This is normally due to the multiplier effect caused by investments made in strategic sectors that increases the level of activities in other sectors. A study of tax structure of the developing countries in the last 40 years reveals that in order to encourage capitalization and growth of industry, most of the Organisation for Economic Cooperation and Development (OECD) countries has provided incentives for the growth of industries in their countries by way of investment allowance.

In India, in the present scenario, there is a need to focus on simplification and rationalization of tax laws and procedures, measures to impart transparency in tax administration and improve the quality of tax service. The overall thrust of tax reforms has been on : (i) measures to stimulate demand; (ii) measures for encouraging private investment and capital formation; (iii) reduction in taxes to encourage consumer spending; (iv) legal changes to stimulate entrepreneurship and (v) transparency in governance.

It is heartening to find that the Finance Minister has duly recognized such aspects and he has moved in that direction. In Para 151 of the Budget Speech for the year 2003-04, he has given an account of the "basket of reforms" on the administrative front. In Para 144, he has expressed his desire to move away from a suspicious - ridden, harassment generating regime to a trust based green channel system. Such approach if faithfully implemented is bound to generate confidence in the country's tax system and encourage foreign investment.

The philosophy and principle of moderate tax rates, better compliance and widening the tax base is already paying good dividend and has to be continued. Sound tax system with the philosophy laid down by the Finance Minister would ensure social justice with equity.

Besides the above, stability in a tax system is very necessary. When a large number of other economic legislations do not undergo major amendments every year, then why the tax laws get changed in a big way every year through Annual Finance Acts needs thoughtful consideration.

Let us have a stable taxation policy framework and let the Finance Act deals with only tax rates. If there is a need to amend the tax laws, let the same be on lines with the amendments made in other statutes of Government of India. It is also important that while amending such laws, views should be taken from Experts and Chambers of Commerce and the mechanism of reference to Parliamentary Standing Committee should be followed.

India with its vast natural wealth, vast multi resources and a big growing consumer market is the best destination for both domestic and foreign investment. FICCI is of the view that investment prospects could be revived through rationalization of the corporate tax, abolition of Minimum Alternative Tax and restoration of investment allowance. Faster spending of the un-utilized funds lying with various Ministries would help improve investment demand and stepping up the pace of disinvestments would help improve business confidence.

With the tremendous technological advancement taking place and shifting of emphasis to quality of products, obsolescence takes place on a much faster pace today. This necessitates huge investments in new plants and machineries for upgradation of the existing ones. The companies at the existing rate of savings are not in a position to undertake complete replacement of their obsolete plants and machineries. In this context, the need for appropriate incentives for upgrading and replacement of plants and machineries has become a matter of paramount importance. Hence, suitable tax incentives for these on the lines in other countries are necessary.

That apart, for investment friendly tax regime, there is a need for efficient and effective tax administration. The Finance Minister through this year's Budget has already made a beginning in that direction. The tempo in this regard needs to be kept moving at faster pace keeping in view the needs of the time.

In this Session, we have speakers from India as well as from overseas. We would like to benefit from the experience of other countries through discussion in the Conference. The practice followed in other countries can be a guide in this regard.

May I now request Dr Suman Bery, Director General, NCAER to address the participants.

Thank You.