The Hindu Business Line : Concern over cess move

THE Common Minimum Programme (CMP) of the Congress-led United Progressive Alliance unveiled on Thursday has left many people rather confused and upset than clear about the policy direction the new Government would take.

Two major points that have raised concern in industry circles are "checking misuse of double-taxation treaties" and "cess on all federal taxes" to finance the commitment to universalise access to quality basic education.

"It is surprising that a micro matter such as double-taxation has found mention in a broad-policy document," said tax expert Mr Ketan Dalal, Senior Partner at RSM and Co. Mr Dalal hoped that the intention was not to tinker at the taxation treaties, the legality and propriety of which was favourably settled by the Supreme Court last year after a prolonged period of uncertainty. "That (tinkering) would be disastrous from an FII perspective," Mr Dalal said.

The tax expert said at first glance, a cess on all federal taxes would include income-tax, central sales tax, excise and customs duties and even service tax. "Conceptually, it would include all direct and indirect tax. And if that is the case it could be a very serious figure," Mr Dalal said.

While there were other uncertainties as well in the CMP, especially regarding labour policies and the oil sector, by and large it has confined itself to what was being speculated in the markets and in industry circles. Some even regarded as reiterating the reform commitment.

Mr Andrew Holland, Executive Vice-President, DSP Merrill Lynch, said, "The CMP seeks to further the reform process by providing a rational tax structure, introduction of VAT, attracting both foreign portfolio investment and FDI. Foreign investors are likely to focus on the Electricity Act revision and will clearly look towards the budget to ascertain the revenue side. There were no big surprises for the markets and the CMP reiterates the Government's commitment to ongoing reforms."

Yet others were crestfallen. "We were hoping against hope that there would be something to cheer," a distressed fund manager with a private mutual fund said. According to her, the CMP not only lacks a clear direction, but also introduces a large degree of uncertainty vis-à-vis the economy and public finance. "There were no big surprises but some measures such as doubling rural credit appear negative for the banking sector," the fund manager said.