New Delhi, Jan. 3: India Inc expects the government to raise the income tax exemption limit in the upcoming budget, besides rationalising levies and rolling out a raft of reforms.
Newly elected Ficci president Pankaj Patel today told The Telegraph: "We expect tax rationalisation and tax base reforms. We are hopeful that the minimum slab for paying income tax would be raised."
Patel, who is the chairman of the Zydus Cadilla group, is known to be close to Prime Minister Narendra Modi.
Industry associations Ficci and CII in their recommendations to finance minister Arun Jaitley have sought an increase in the income tax exemption limit to Rs 3 lakh from the present Rs 2.5 lakh. BJP MPs have demanded the exemption limit be raised to Rs 5 lakh.
Ficci and the CII have also proposed a rejig of tax slabs - a 20 per cent tax for annual incomes of Rs 10 lakh or more and 30 per cent for incomes of Rs 20 lakh and above. At present, the income floors are Rs 5 lakh and Rs 10 lakh, respectively.
Finance ministry officials had indicated that they would tinker with the lower tax slabs but said the top tax bracket might not be raised.
"What the government will do is of course something which it traditionally keeps close to its chest. But we expect some positive movement on taxes and reforms," Patel said.
The chambers have also asked the government to reduce the corporate tax rate to 25 per cent and do away with surcharges and cesses.
Following the demonetisation drive, BJP leaders have been asking party managers to take steps in the budget that will be pro-poor and pro-middle class. The party enjoys a loyal following among India's middle class and has recently made inroads into rural vote banks as well.
Many expect Modi to instruct Jaitley to rustle up a mini-election budget to help him overcome the flak his party is facing because of demonetisation and reap political mileage in the Assembly elections in four states, including Uttar Pradesh and Punjab.
"We also expect a new wave of reforms - there should be a thrust on infrastructure, tax sops for moving towards digital transactions, further reform in foreign direct investment, insurance and of course financial reforms," Patel said.
The new Ficci chief also advocated farm reforms. "The Mandi act is outdated. It holds farmers prisoners to middlemen. They do not get better returns as the farmers are forced to sell only to designated traders."
Industry has been pressing for this measure as it maintains that if farm incomes grow, "there will be a faster rural recovery, which in turn will boost demand for industrial goods - motorcycles, cement and FMCG products - which will translate into economic growth".
India Inc wants the government to live up to its promise to set up an online national market for farm commodities, which will not only raise farm incomes and cut out middlemen but also enable retail chains such as Reliance Retail, Big Bazaar and Spencer's to buy directly from farmers and make their operations more viable.
According to Patel, demonetisation will yield "short-term pain for long-term gains", which include easier and cheaper fund flows into businesses.
Industry expects part of the informal sector to either shift to the formal sector or the formal sector to become stronger because of demonetisation as firms will now have to adopt better regulatory rules while conducting business. "The informal sector constitutes 30-40 per cent of the economy. A shift to formal of even a third of this is good for the economy. It means we will capture their contribution and growth better, which we know we have been under-reporting. It means a boost for GDP," Patel said.
He expects the sudden spurt in liquidity in the banking system will help lenders to slash interest rates. "We have already seen how there have been cuts of up to 1 per cent in interest rates. We can expect more in the future as the whole economy moves towards global interest rates, which we feel for India would be in the range of 6-7 per cent."