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Cut personal income tax rates and decriminalize GST law, says industry organization CII

The Confederation of Indian Industry (CII) has advocated lowering personal income tax rates to boost demand a day before Union Finance Minister Nirmala Sitharaman begins the traditional pre-budget discussions with stakeholders.

This might help about 5.83 crore people who are members of the income tax system and have submitted ITRs for the fiscal year 2022-23.

While this suggestion may boost the amount of money in the hands of people who pay direct income taxes, the second important recommendation by the industry association CII, if implemented, may result in lower pricing for items that attract high GST rates.

The CII has advised that the Union government consider lowering the 28% GST rate on some consumer durables.

Interestingly, the business organization wants the government to decriminalize the GST in another proposal. It contended that appropriate criminal penalties for deterring tax cheating are already established in the GST statute.

The recommendation also stated that the applicability of prosecution provisions should be based on “real intent to evade taxes along with a certain percentage of the tax payable,” rather than “the total amount of tax evasion.”

MEASURES THAT ARE DIFFICULT TO IMPLEMENT?

However, given the revenue situation, analysts believe that the CII’s recommendation on income tax would be difficult for the finance minister to implement. In a September release, the department of revenue stated that Direct Tax net revenues for FY 2022-23 (as of 17/9/2022) amounted to Rs 7,00,669 crore, up from Rs 5,68,147 crore in the same period of FY 2021-22. This was a 23% rise.

The Net Direct Tax collection of Rs 7,00,669 crore (net of refund) includes Corporation Tax (CIT) of Rs 3,68,484 crore and Personal Income Tax (PIT) comprising Securities Transaction Tax (STT) of Rs 3,30,490 crore.

Similarly, the GST council must decide on the proposal to reduce the highest GST slab. Revenue Secretary Tarun Bajaj announced in July that the government wants to reduce the number of tax slabs in the GST regime.

“The government would like to keep the top GST slab of 28% for luxury and sin goods while looking to narrow down rates between 5-18% slabs to two at first before making GST a single mean rate tax system,” he said.

GST collection amounted to Rs 1,51,718 crore in October. This was the second highest level since July 2017, when the GST regime went into effect. The biggest-ever GST collection of Rs 1,67,540 crore was reported in April.

FUEL AND FERTILIZER SUBSIDIES

In terms of expenditure rationalization, the CII has emphasized the importance of reducing non-priority spending by rationalizing subsidies such as fuel and fertilizers. Non-merit subsidies, according to the body, are economically unsustainable because they account for 5.7% of GDP, 1.6% of which comes from the Centre and 4.1% from states.

TO RESTORE INVESTMENT

To stimulate investment, the industry organization has advised that the government increase capital spending from the current 2.9% of the country’s GDP to 3.3-3.4% in the fiscal year 2023-2024. It has also suggested an increase in government capital spending to 3.8-3.9% by FY25.

To accomplish its divestment ambitions, the CII suggested that the government accelerate the privatization of public sector enterprises (PSUs) in the coming fiscal year.

Aside from this, the industry association has made suggestions on a variety of subjects, including green and rural infrastructure initiatives.

BUDGET RECOMMENDATIONS FROM CII

  • Reduce personal income tax rates to stimulate demand
  • Reduced GST rate of 28% on some consumer durables
  • GST legislation should be decriminalized.
  • Increase the number of jobs created by investing in rural infrastructure projects.
  • Increase capital spending to 3.3-3.4 percent of GDP in FY24, up from 2.9 percent now.
  • Increased investments in green infrastructure, such as renewables, as well as traditional infrastructures, such as roads, trains, and ports
  • A plan has been developed to reduce the budget deficit to 6.0 percent of GDP in FY24.
  • Accelerate the privatization of public-sector enterprises.
  • Subsidies for fuel and fertilizers are being rationalized¬†
  • to reduce non-priority spending.

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