PM Modi ques­tions tax breaks for cor­po­rates

‘We have to be prag­matic, elim­i­nate bad sub­si­dies’

Hindustan Times ST (Mumbai) - HT Navi Mumbai Live - - FRONT PAGE - HT Correspondent let­ters@hin­dus­tan­

NEW DELHI: Prime Min­is­ter Naren­dra Modi on Fri­day called for tar­geted sub­si­dies and re­forms that trans­form the lives of the poor, and ques­tioned tax in­cen­tives for cor­po­rates, barely a month be­fore the govern­ment presents the bud­get for 2016-17.

“Why is it that sub­si­dies go­ing to the well-off are por­trayed in a pos­i­tive man­ner? Let me give you an ex­am­ple. The to­tal rev­enue loss from in­cen­tives to cor­po­rate tax pay­ers was over ` 62,000 crore,” the PM said at a busi­ness event in the Cap­i­tal.

He also took a dig at ex­perts for seek­ing an over­haul of In­dia’s sub­sidy regime while re­main­ing silent on in­cen­tives for the well-off that of­ten dis­tort the tax sys­tem.

“Div­i­dends and long-term cap­i­tal gains on shares traded in stock ex­changes are to­tally ex­empt from in­come tax even though it is not the poor who earn them. Since it is ex­empt, it is not even counted in the ` 62,000 crore,” he said.

Modi’s com­ments marked a de­par­ture from the usual prac­tice of top govern­ment func­tionar­ies who avoid com­ment­ing on spe­cific tax- re­lated is­sues weeks ahead of the bud­get.

Com­pa­nies some­times ex­ploit bi­lat­eral treaties to avoid pay­ing taxes, he said. “Dou­ble tax­a­tion avoid­ance treaties have in some cases re­sulted in dou­ble non-tax­a­tion. This also is not counted in the ` 62,000 crore. Yet, th­ese are rarely re­ferred to by those seek­ing re­duc­tion of sub­si­dies. Per­haps, th­ese are seen as in­cen­tives for in­vest­ment. If the fer­tiliser sub­sidy were to be re-named ‘in­cen­tive for agri­cul­tural pro­duc­tion’, I won­der if some ex­perts might view it dif­fer­ently,” he said.

Fi­nance min­is­ter Arun Jait­ley had in his bud­get speech last Fe­bru­ary said the govern­ment would re­duce cor­po­rate tax rate to 25% over the next four years from the present 30%. But this would be ac­com­pa­nied by a cor­re­spond­ing phase-out of tax ex­emp­tions and de­duc­tions, which would bring more clar­ity to the tax regime, he’d said.

In Novem­ber, the govern­ment had laid down a com­pre­hen­sive road map for phas­ing out cor­po­rate tax ex­emp­tions over the next two years as it looked to re­duce the tax rate, sim­plify ad­min­is­tra­tion and im­prove In­dia’s com­pet­i­tive edge glob­ally.

The move could hurt com­pa­nies that have been ben­e­fit­ing from th­ese ex­emp­tions for years, at least in the short to medium term.

“I must con­fess I am sur­prised by the way words are used by ex­perts on this mat­ter. When a ben­e­fit is given to farm­ers or to the poor, ex­perts and govern­ment of­fi­cers nor­mally call it a sub­sidy. How­ever, I find that if a ben­e­fit is given to in­dus­try or com­merce, it is usu­ally an ‘ in­cen­tive’ or a ‘ sub­ven­tion’,” Modi said.

The PM said “there can­not be any ide­o­log­i­cal po­si­tion on such mat­ters”. “We have to be prag­matic. We have to elim­i­nate bad sub­si­dies, whether or not they are called sub­si­dies. But some sub­si­dies may be nec­es­sary to pro­tect the poor and the needy and give them a fair chance to suc­ceed. Hence, my aim is not to elim­i­nate sub­si­dies but to ra­tio­nal­ize and tar­get them,” he said.


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