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Tax cuts – not enough

I had suggested earlier that the government needs to take the following steps to stimulate the economy:

(a) Reduce the taxes (direct and indirect). Reduce income taxes to place more money in the hands of the consumer so as to increase consumption.
(b) Excise and service tax should be reduced to reduce the cost of goods for the consumer to enhance demand.
(c) Service tax should be reduced to reduce the cost of services for the consumer to enhance demand.
(d) Expedite Income Tax refunds which would place money in the hands of the consumers as well as companies to spend. It would also eased the liquidity of the companies.
(e) Put smaller infrstructure on fast track so that allocated money starts working in stimulating the economy.
(f) Take suggestions from industry bodies to make changes in rules and regulations so that doing business becomes easy.

Today, the government took some actions on the suggestions made by me. I hope my blog post was responsible for this action. I am sure this is not case but I feel good that I am thinking in the right direction. But the government has not done enough.

Today, Excise and service taxes have been reduced by 2%.According to me, the government should have reduced the excise and service tax by 50%. FM Pranab Mukherjee said that the drop in service tax is a step towards achieving a common “goods and service” regime. Well, these are extraordinary times which require extraordinary actions. Why not bring the service tax and Vat to the same level immediately and then within a short time turn it into a common tax regime.

I am not too sure but I think there was no reduction in Income Tax announced.
What I am also disappointed about is that no mention was made regarding quick refund of Income tax. I have an employee working for us whose Rs. 12,000 refund money has not arrived since last two years. My family has almost Rs. 1.5 lakhs stuck in Income tax refunds. My business has nearly Rs. 4.0 lakhs stuck in refunds. I think this is the most important action that the government can take to stimulate the economy.

I would like to suggest one more action that the government should have taken quite some time back. They should have asked every industry association to give suggestions as to what actions can be taken which will facilitate them in doing business without hassles. For instance, let us modify any any laws, rule or regulation is not grounded in reality. Such a step will build the confidence of entreprenuers to increase their business. I think this action will raise the sentiments of businesses.

I heard businesses demanding CRR. SLR rate cuts but what will that do. Even easy availability of credit is not going to motivate people to take loans. Today, it is a problem of lack of consumer demand because people are losing jobs. What needs to be done is create jobs and put money in the hands of the people not through loans but as salaries and tax refunds. This is what will confidence to the people to spend money and raise demand.

Avinash Narula

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