The Hindu : Business : Restore depreciation rate to earlier levels: FICCI

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Friday, Mar 11, 2005

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Restore depreciation rate to earlier levels: FICCI

By Our Special Correspondent

NEW DELHI, MARCH 10 . In a 14-point post-budget agenda aimed at delivering the much-needed boost to India Inc. for growth and competitiveness, the Federation of Indian Chambers of Commerce and Industry (FICCI) has urged the Finance Minister, P. Chidambaram, for a re-look at the hike in surcharge on corporate tax, reduction in depreciation rates and introduction of the Fringe Benefits Tax (FBT).

While hailing the budget 2005-06 initiatives for empowering the masses to ensure sustained economic growth, the FICCI President, Onkar S. Kanwar, has pointed to some of the key areas that need to be addressed when the Finance Bill comes up for discussion.

In his note to the Finance Minister, Mr. Kanwar has also sought widening of the scope of weighted benefit for promotion of research and development (R&D), abolition of the dividend distribution tax and the banking cash transaction tax along with discontinuance of the education cess.

Even as the cut in the corporate tax rate for domestic companies from 35 per cent to 30 per cent was a welcome step, Mr Kanwar noted that the increase in surcharge to 10 per cent coupled with the 2 per cent education cess led to an effective tax reduction of only 3 per cent. As this defeats the very purpose of reducing the basic corporate tax rate, "we would urge you to kindly consider restoring depreciation to its earlier level to provide greater benefits to industry,'' he said.

Another area of discontent, he said, is the imposition of the FBT regime since expenditure incurred by the employer apparently for business purposes had a measure of `personal benefit' to the employee built into it. The nature of this `expenditure tax' levy, Mr. Kanwar said, takes us back to the pre-1998 scenario when such expenses were disallowed.

While FICCI agrees with the Finance Ministry view that the perquisites of a private nature offered across-the-board are taxable income in the hands of employees, Mr. Kanwar has pointed out that "there is a dire need to incur expenses on brand building such as advertisement, travelling and sales promotion.''

U. K. model

The FICCI chief has suggested not only restoration of the depreciation rate to its earlier level but also urged the Government to consider introducing the concept of "free depreciation," as is the practice in the U.K., to provide a greater boost to industry and economy.

He pointed out that mergers, amalgamations, acquisitions and similar measures of corporate restructuring are the new ways in which India Inc. is now consolidating and creating positive synergies in the globalising economy. These, he said, should be encouraged to make India an important and preferred investment hub in Asia.

On the dividend distribution tax, the FICCI chief noted that the levy on companies resulted in double taxation of business income.

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