WITH the Congress-led UPA nursing a thumping win, there are many expectations on the reforms front from the Government, particularly, from Budget 2009. A simplistic and stable tax and foreign investment policy plays a very conducive role in channeling foreign capital flows into the economy over the long run, more so in case of an emerging and aspiring economy like India. So here's a quick look at some tax and foreign investment policy reforms expected of Budget’09.

Tax reforms
Every time Budget nears, 'tax reform' becomes the buzzword. One wonders whether Budget 09 is opportune with India starring at fiscal deficit (aggregate at centre and state level) of more than 12 per cent of gross domestic product (GDP), obviously, the opportunity for big bang tax cuts is limited.  
For investors though, tax reform is not only about lowering rates, it is as much about a simple tax structure, less tax heads, efficiency in tax collection, lower compliance and litigation costs and an environment of certainty on tax cost of doing business in India.  Here are some tax neutral thoughts to signal an investor friendly tax regime.

Simplify tax rates
Historically, Indian tax rates be it corporate or personal or indirect taxes have been complex with multiple components like surcharge, cess, etc. over and above the basic rate. Whilst there may have been valid reasons for their introduction, they have made the tax structure increasingly complex.  Without much ado and impacting the fiscal imbalance, the finance minister (FM) can announce a 'one basic tax rate' policy, which can signal intent to simplify. 

Reducing tax heads– GST commitment and scrapping FBT/BCTT
The Indian tax system is plagued by multiple taxes at various levels –Central, State and local.  This leads to higher compliance costs for tax payers as also inefficiency for Government in tax collection.  Agreeably, the FM cannot do much on this without state support but certainly he can take the lead.  

The FM needs to reiterate the intent to introduce goods and service tax (GST).  If GST is to be introduced from April 2010, it is important the road map is laid out, enabling the industry to prepare for the new regime.  A status update in terms of the Centre and States’ preparedness would help calm nerves of critics doubting the April 2010 deadline. 

The FM can also seize the initiative by scrapping fringe benefit tax (FBT) and banking cash transaction tax (BCTT). These levies in any case do not contribute significantly to the government coffers and their abolishment would create efficiencies for both taxpayers and Government.  Possibly, the industry would even welcome a 100 basis point increase in corporate tax rate, by scrapping FBT.  

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