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In a bid to ward off criticism that it lacks a coherent economic policy, the Aam Aadmi Party, in a soon-to-be-released vision document, will outline a plan to remove various tax deductions allowed to corporate India, while expecting the Centre to rely more on direct taxes for its revenues and favouring foreign direct investment (FDI) in all sectors, except defence and other “sensitive” areas, provided these capital flows don’t lead to creation of “monopolies”.
The AAP’s Delhi state government may have decided against allowing FDI in retail, but its draft economic vision document, a copy of which has been seen by FE, says, “FDI in retail or banking is to be welcomed as FDI improves competition.”
The party, whose spectacular show in the recent Delhi assembly elections and whose ambitious plan to contest over 400 Lok Sabha seats prompted political observers to watch it closely in the run-up to the general elections, also proposes to legislate to pre-empt any future amnesty scheme for tax evaders while stating that subsidies that don’t reach the intended beneficiaries could be weeded out.
Besides slashing corporate tax exemptions, the AAP, if it comes to power, would also introduce a carbon tax on companies. The Direct Taxes Code (DTC) Bill before Parliament anyway proposes to replace profit-linked deductions with investment-linked ones.
The AAP discussed its draft economic policy with economists and technocrats on Sunday here.
The document, which will form the basis for its national election manifesto, proposes a potent dose of tax reforms. It makes a strong case for “eliminating hundreds of different types of deductions” on taxable income and for strictly enforcing tax compliance. The AAP is contemplating to raise the share of direct taxes in the government's gross tax revenue from 54% at present to 65% in eight years. Focusing on corporate, personal income and wealth taxes for revenue mobilisation implies that the party does not want to hurt the aam aadmi who has to pay indirect taxes on most of the products and services purchased.
The AAP, led by Delhi chief minister Arvind Kejriwal, wants the government at the Centre to depend less on indirect taxes (excise, service tax, customs duty, etc) for revenue. The party, therefore, proposes to increase the coverage of corporate, personal income and wealth taxes and raise the marginal tax rates. The higher resources thus raised would be utilised for job creation and