EAC favours tax sops to spur growth

NEW DELHI: Prime Minister’s Economic Advisory Council (EAC) Chairman C. Rangarajan on Wednesday pitched for greater incentives on the income-tax front coupled with a downward revision in the rates of indirect taxes on consumer goods so as to re-energise the economy during 2008-09 for higher growth.

Speaking to newspersons after EAC’s pre-budget meeting with Finance Minister P. Chidambaram here, Dr. Rangarajan, when asked whether the council favoured more tax exemptions, said: “Some adjustments in income-tax slabs and so forth [could be made], but not any substantial reduction in tax rates”.

The EAC’s view, Dr. Rangarajan pointed out, was that while the current rates of income-tax could be kept unchanged in the budget for the next fiscal, there could be “some readjustment” in the various taxation slabs. In effect, keeping the basic taxation rates unchanged at 10, 20 and 30 per cent, the council’s suggestion is for an upward revision in the various slabs of income to be brought under tax so as to leave more money in the hands of the taxpayers.

The council’s major concern is the evident slowdown in the manufacturing segment which could restrict the country’s economic growth to 8.5 per cent in 2008-09. “… there are some areas of concern where there are weaknesses,” Dr. Rangarajan said. Against this, the economy posted a high growth of 9.4 per cent in 2006-07 and a near nine per cent growth is expected for the current fiscal year too.

Twin strategy

It was in this context, therefore, that the EAC suggested a twin strategy to spur growth during 2008-09 — increased public investment along with some adjustments in indirect taxes. Asked whether the council was for a cut in excise duties on consumer durables, Dr. Rangarajan said: “Something of that sort...”

In totality, while more money would be available with taxpayers for spending, a cut in excise on consumer durables would lower prices and result in higher demand for goods and thereby spur the manufacturing sector for higher economic growth.

On the pricing issue in the oil sector, the EAC chief pointed out that the council had already recommended a switch in the excise duty structure on crude oil to specific rates of duties instead of the current ad valorem rates. “That point was also made [at the pre-budget meeting],” he said.