Banking Sector Needs Fiscal Reforms : CII
Development of banking sector is crucial for sustaining a high growth of the economy in the long run said a press release issued by the Confederation of Industry (CII) here today. Recognizing a number reforms being initiated in the banking sector in India in the last few years, CII has stressed the need for carrying out some more reforms, particularly on the fiscal front in Budget 07-08, to help the banking sector meet the requirement of the fast growing economy.
CII is of the view that the banks should be granted exemption from TDS under Section 196 as banks are facing considerable inconvenience in the form of collecting huge volumes of TDS certificates from thousands of borrowers / customers. Also, non-receipt of TDS certificates from the borrowers / customers results into loss of tax benefit to the banks as the income-tax department does not grant credit for the tax deducted at source in such cases. CII has suggested that TDS credit be allowed even on non-receipt of TDS certificates from the borrowers / customers on the basis of indemnity from the banks that no additional claim will be raised again for TDS credit on receipt of such TDS certificates in future.
Given the huge requirements of funds for investments in the economy, banks are increasingly relying on borrowings from foreign sources to complement the resources raised internally. Looking at the critical role played by borrowings from foreign countries, CII has stressed the need for making the external commercial borrowings cheaper by reintroducing section 10(15)(iv)(d) so as to allow tax exemption on payment of interest on ECBs. Withdrawal of tax exemption along with removal of TDS on ECBs would go a long way to enhance the competitiveness of the Indian industry vis-Ã -vis other Asian countries like Hong Kong, Malaysia, Singapore and Taiwan, which do not impose withholding tax stated the press release.
To give a boost to housing sector financing, which has played an important role in making houses available to larger section of the population at reasonable borrowing rates, CII feels that the exemption available to housing finance companies under section 10(15)(iv)(g) for procuring funds through external commercial borrowings should be reintroduced.
The CII Press Release went on to say that Banks should be encouraged to participate in derivative trading to help them have more balanced mix of assets. This can be done by treating banks derivative trading at par with other business activities for the purpose of the Income Tax Act. As the banks have entered the derivative market on the specific recommendation of the Reserve Bank of India, the profits and losses on account of market making transaction in the derivative products should be treated at par with other business activities, observed the CII release.
Highlighting the role of consolidation of banks, the CII press release has noted that the consolidation through amalgamation is an integral part of the banking sector which facilitate higher growth, achieve better operational efficiency and meet competitive challenges. Fiscal incentives can play a big role in encouraging consolidation and enable banks to gain long-term stability by preventing sickness. In this connection CII has recommended that the benefit under section 72A to carry forward and setoff unabsorbed business losses and accumulated depreciation - currently available only to nationalized banks - be extended to the banks operating in the private sector which would also help in ushering a level playing field to all.
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