Economists proposed higher income tax rate for the super-rich at a pre-Budget meeting with Finance Minister P Chidambaram, according to a finance ministry statement today. "Another suggestion included following of principle of progressivity, i.e., higher tax rates for the high-income group," the release said, talking about the pre-Budget consultations.
Recently, Prime Minister's Economic Advisory Council Chairman C Rangarajan had pitched for a surcharge on income tax for the super rich.
"One need not disturb the structure of income tax system as it is now…but add a surcharge for income above a particular level. I believe as we go along, we need to raise more revenues and people with larger incomes must be willing to contribute more," he had said.
At today's meeting, economists are said to have suggested various other steps, including reversing the low investment cycle, imposing inheritance tax and maintaining certainty in tax laws.
Certainty of tax laws is significant, as the government drew flak due to its Budget proposals of retrospective amendments to the Income Tax Act and the General Anti-Avoidance Rules.
To look into the issues, the government had appointed a committee under tax expert Parthasarathi Shome. The panel's report is pending with the Prime Minister's Office.
Today, economists also pitched for a wider tax base and the effective enforcement of tax laws to penalise those who hid their incomes and paid less tax, as well as those who, despite high incomes, didn't pay any tax at all.
They also proposed an asset management office to take care of the government's land in various metro, Tier-II and Tier-III cities. Some economists suggested pursuing reforms at regular intervals to keep the market sentiment high.
The proposals included putting Basel-III reforms on hold for a year, considering the current economic situation, said a statement issued by the ministry.
Incentives to boost small savings schemes were also proposed, especially as savings under these schemes had declined five per cent through the years.
Some economists also called for shifting the pre-Budget consultation process to October, when the Budget-making process actually started.
On the inflation front, economists recommended quick action to reduce inflation to four to five per cent as soon as possible. They also sought higher investment in the health & education sector, and higher capital expenditure on agriculture, etc.
Chidambaram said the difficult phase for the economy was over and now, the focus would be on achieving high growth during the year. The economic and political developments in the Euro zone and the US had an impact on the world economy, including India, he said, adding a slew of reform measures taken by the government had a positive impact on the market sentiment.
He said resolution of the fiscal cliff' issue in the US had also lifted market sentiment. He said while direct tax collections were satisfactory, indirect tax collections, including excise duty, were short of expectations.
Among those present at the pre-Budget meet were economist Nitin Desai, Omkar Goswami of CERG Advisory, former Federation of Indian Chambers of Commerce and Industry secretary general Rajiv Kumar, Pulin Nayak of Delhi School of Economics and Surjit Bhalla of OXUS Research and Investments.