Tax exemptions are costing India's exchequer about Rs. 200, 000 crore annually and it is necessary to phase them out to provide a level playing field for domestic companies to make for a successful Make in India campaign, a finance ministry official said on Wednesday.
"In direct tax, we are losing about Rs. 1 lakh crore in these exemptions. The cause may be noble, but it distorts the taxation system. In case of indirect tax also, we are almost losing Rs. 1 lakh crore because of various exemptions given for SEZs, EOUs, " Revenue Secretary Hasmukh Adhia said in an interview on the finance ministry's YouTube channel.
"The focus of the budget should be on tax rationalisation and simplification. The focus should be on promoting growth, employment and in terms of giving some sort of level playing field to domestic manufacturers so that 'Make In India' can happen.
"Had we not given all these exemptions, we would have been able to probably reduce the income tax rate and we would have been given a more fair deal to people in paying the same thing, " Adhia added.
Describing exemptions as creating inequity, he said removing exemptions would also help in improving the tax to GDP ratio that is currently around 10 percent.
"Exemptions create inequity. . . between the existing unit and the new unit which is availing the exemption and it also creates inequity in terms of smaller companies and bigger companies, " he said.
"There is a need to increase the tax to GDP ratio, but you also have to see the capacity of people to bear that kind of taxation burden. If we simply rationalise the taxation system and remove the exemptions, I am sure the tax to GDP ratio can be enhanced substantially, " he added.