The Overseas Investors Chamber of Commerce & Industry (OICCI) has observed with interest the Budget 2010-11 announced on June 5, 2010.

In the new Budget the government has announced incentives for promoting investment through measures such as 10% tax credit on BMR, and 5% tax credit to be allowed to a company in the tax year of its enlistment. As suggested by OICCI, the government has also narrowed the gap between the income tax rates for small and other companies.

OICCI also appreciates the government’s decision for deferring Value Added Tax (VAT) until October, 2010. Whereas the Chamber believes that VAT should be enforced in order to improve the country’s tax to GDP ratio, it also recommended in its budget proposals that proper infrastructure for VAT should be put in place before its implementation. OICCI hopes that the government will utilize this time in laying a solid infrastructure for the launch of VAT.

Whereas the government has made headway into easing out the problems faced by the business community, there are still certain grey areas left that have brought along with them negative implications for the economy at large. Among these, following are the three major areas of concern for investor community:

o Increase in turnover tax rate from 0.5% to 1%
o 1% increase in the General Sales Tax (GST) from 16% to 17%
o Imposition of 0.3% withholding tax (WTH) on all modes of banking transactions in excess of Rs. 25,000 per day including Demand Draft, Pay Order, etc.

OICCI recommends that the government take notice of these issues specially the WTH Tax on banking transactions, as it may affect deposit mobilization and promote cash transactions. OICCI had originally proposed that the GST rates should be reduced to grow businesses and contain inflation.

OICCI firmly believes that a country’s tax system and its hassle-free and investment friendly implementation are key determinants of its investment environment. The Chamber through its Budget Proposals 2010-11 submitted earlier, had urged the government to:

o Broaden the tax base – Make sure the already taxed sectors are not further  urdened with taxation
o Adopt progressive fiscal and tax policy measures that encourage FDI, particularly in manufacturing
o Remove impediments in the implementation of investor friendly tax policies/laws