"UNLEASHING INDIA'S TRUE POTENTIAL"
International Conference on Emerging Tax Policy : Challenges and Perspectives
November 5 - 6, 2004, New Delhi

Welcome Address by Shri Onkar S Kanwar, Sr. Vice President, FICCI

Good Morning Ladies and Gentlemen and a very warm and cordial welcome to all of you to this International Conference on Emerging Tax Policy: Challenges and Perspectives. I am particularly grateful to Dr Parthasarthi Shome, Advisor to the Finance Minister for our request to deliver the Special Address at the conference. Dr Shome hardly needs any introduction to this august gathering. Dr Shome Chaired various Government Committees such as Advisory Group on Tax Incentives for Savings; Tax Policy and Administration for the Tenth Plan; Group of Officials and Experts on Taxation of Inter-State Trade etc. I am confident, his vision statement will set the right tone and tenor of the deliberations at the Conference.

I am also thankful to H. E. Mr Francisco da Camara Gomes and Mr Ramesh Vangal for accepting our request to deliver the Keynote Address.

FICCI has organised this annual Conference - 4th in the series, in association with OECD, IBFD and European Commission. I would like to thank all the three organisations for their support and co-operation, without which it would not have been possible for us to organise this event. My special thanks to those of you, who have made it convenient to come from far off places. It reflects the earnestness of other countries' interest in India.

After the liberalization and globalization process initiated by our government since 1991, the country has undergone a sea change in its outlook towards foreign investment and global collaborations. We have now a number of successful joint ventures in both India and abroad. India's position in the global economy has improved from the 8th ranking in 1991 to the 4th place now when measured on a purchasing power parity basis. Most encouraging trends have been in the services sector, the growth of which has exceeded the 8% mark over the last decade. An international comparison shows that India's services sector exports were the most impressive with growth rates pushing up to 17.3% in the nineties as compared to 15.85% in China, 12.3% in Korea, 7.3% in Canada, 6.1% in USA, 4.4% in the European Union and 3.5% in Japan.

A major factor that is pushing India upward is its abundant workforce both skilled and unskilled available with comparatively lower costs. Low operational costs, high profitability, large domestic market, strong IT skills, stable policy environment etc. are amongst the other factors. We have to build ourselves around these competitive strengths to the maximum extent and to continue our economic reform process in the right direction to accelerate the pace of our economic growth.

We have chosen the theme of this Conference as 'Unleashing India's True Potential' because we feel that the time is ripe to showcase India's true potential to the world, potential as an Investment Destination, potential as outsourcing hub and above all potential as strong, stable and growing economy.

Our Government is committed to ensure that the economy grows at least 7-8% per year in a sustained manner over the next decade and more. The Government is working towards a growth and investment oriented stable tax regime.

Friends, we are passing through a transitional phase and yet a growing economy with limited resources and need around $150 billion from abroad in the next few years to provide a world-class infrastructure and be able to achieve a higher level of economic growth. We have, therefore, to create a conducive environment for FDI inflows. The Hon'ble Union Minister of Finance in his budget speech echoed the same sentiments when he proposed to set up an investment commission. It is a matter of great satisfaction that the Cabinet Committee of Economic Affairs has recently cleared the proposal of setting up of an Investment Commission to woo foreign and domestic investors for major projects in the country.

The moot point for consideration is what policy changes be brought about in our tax regime to suit the emerging business scenario and be attractive enough for investments both from within and abroad. I am sure the galaxy of experts sitting over here would have a number of constructive suggestions.

I take this opportunity to make a few points for consideration :

First : Multiplicity of local taxes levied by States with their cascading effect irritates entrepreneurs and discourage investments and free movement of goods and services. While the entire world is heading towards a full market economy, it may not be desirable to allow such trade barriers across the States. It is our earnest hope that the VAT would be implemented from 1st April, 2005 as scheduled. To my mind, ultimate objective should be to implement a National VAT covering all kinds of services with set offs for all taxes paid, with the total incidence of 16% including state taxes.

Second : In his budget speech the Union Finance Minister indicated to align India's tariff structure to those of ASEAN countries and signalled to bring down customs duties in a measured way. We in FICCI believe that unless and until the disabilities which the Indian industry is facing with regard to Labour, Infrastructure, Transaction Cost, Power, Interest, Taxes and duties and Small Scale Reservation are addressed and suitably tackled, there should not be any general reduction in customs duty structure as the same would seriously affect our economy and industrial growth.

Third : Corporate Tax rates should be lowered to bring it at par with the rates prevailing in developing countries especially the ASEAN where the same is around 25%, and MAT and Dividend Distribution Tax considered for withdrawal. While we support the withdrawal of exemptions, we are convinced that if government wishes to attract private investment in the infrastructure projects which require huge capital investment, have long gestation period and deliver profits only after five to seven years of commencement of operations, some sort of incentive framework would have to be in place.

Fourth : Concept of Free Depreciation should be introduced whereby an enterprise may choose the quantum of depreciation and the years of claim so that it is in a position to plan its cash flow in a better manner to optimise productivity. Since the total depreciation allowed to the enterprise will not exceed the cost of asset, there would not be any revenue loss to the Government. The same practice is prevalent in UK. Spain and Finland had followed this system till the late 70's. Spain continues to offer free depreciation for certain specified assets.

Fifth : Transfer pricing solutions need to be flexible enough to adapt as the Group's business develops taking into consideration the organizations perception of the risks of adverse tax assessment. It should also consider both planning opportunities and risk management and to weigh effective tax rate against fiscal authority challenges and cost of compliance.

Last but not the least is the need to impart transparency in tax administration, improve the quality of tax service and to simplify and rationalise tax laws and procedures, which are in conformity with the international practices. This has assumed added significance in the context of increasingly cross border transactions taking place.

May I now request Mr Ramesh Vangal Chairman and Board Member, Scandent Network Pvt. Ltd. to make his key note address.

Thank you.