Budget 2016-17: Tax exemptions may be phased out to boost manufacturing

The finance ministry may take the course of reducing tax exemptions for it cost exchequer about Rs 2 lakh crore annually.

Ahead of the Budget 2016-17, which will be announced on February 29, the ministry said it was important to phase them for a level playing field to domestic manufacturing companies for Make in India’s success.

The tax department has already come out with a draft roadmap for phasing out tax exemptions, and the final roadmap would be unveiled in Budget.

"The focus of the budget should be on tax rationalization and simplification. The focus should be on promoting growth, employment and in terms of giving some sort of level playing field to domestic manufacturers so that the Make In India can happen," Revenue Secretary Hasmukh Adhia said.

Removal of tax exemptions, Adhia said, would able the government to reduce income tax rate and give a more fair deal to people paying taxes.
"In direct tax, we are losing about Rs 1 lakh crore in these exemptions. The cause may be noble, but it distorts the taxation system. In case of indirect tax also, we are almost losing Rs 1 lakh crore because of various exemptions given for SEZ, EOU,” said Adhia.

Adhia said removing the exemptions would also help in improving the tax: GDP ratio which is currently around 10 per cent.

"There is a need to increase the tax: GDP ratio but you also have to see the capacity of people to bear that kind of taxation burden. If we simply rationalise the taxation system and remove the exemptions, I am sure the tax to GDP ratio can be enhanced substantially," he added.