Tuesday, January 10 2006 19:00 Hrs (IST) - World Time -

New Delhi: Having rejected any move to divest profit-making PSUs, the Left parties have come up with an alternative strategy to raise resources for funding social sector projects that includes taxing security transactions and capital inflows and increasing tax rates on luxury goods and services, including cars.

Observing that "effective taxation" of the corporate sector was very low, the four Left parties, which act as a prop to the United Progressive Alliance (UPA) Government have also recommended imposition of payroll tax on employers, mopping up of tax arrears, crackdown on tax evasion and recovery of non-performing assets.

In a note which they are expected to submit at the upcoming Left-UPA Coordination Committee meeting, the parties have also asked that tax on short-term capital gains be raised to 15 per cent to enhance revenue-generation and stabilise hot money flows.

Maintaining that the accumulated cash reserves of 50 central public sector undertakings amounted to over Rs 2.2 lakh crore amounting to about 7.5 per cent of the GDP, the parties pointed out that there was under-investment in the PSUs and sought its reversal in order to reinvigorate these units.

In their 13-point note which is being given final touches, the Left have also sought widening of the service tax net, saying the service sector accounted for 50 per cent of the GDP and tax mobilisation was below potential.

In line with their stand to tax the rich, the Communist Party of India-Marxist (CPI-M), Communist Party of India (CPI), Republican Socialist Party (RSP) and Forward Bloc, have been maintaining that instead of divesting the profit-making PSUs, slashing subsidies in the farm sector or cutting expenditure on social sector projects, these alternative steps would generate huge additional revenue which could be used to fund prestigious projects like the National Rural Employment Guarantee Scheme.

Among the suggestions being considered include a tax on conversion of agricultural land for non-agricultural purposes and a land ceiling beyond which there could be no exemption of wealth tax in rural areas.

Other measures include doing away with exemptions in corporate tax in a phased manner, a new inheritance tax with suitable exemption limit, excise duty on diesel-run motor vehicles except those meant for public transport, tax on luxury cars and higher rate of excise for generators used for industry and private purposes.

The parties disfavour government's decision to do away with long-term capital gains tax and reducing short-term capital gains tax to ten per cent. They have suggested that this tax rate be raised to 15 per cent and a nominal tax rate imposed on long-term capital gains.

On the Rs 2.2 lakh crore worth of accumulated reserves of the 50-odd PSUs, the Left parties have pointed out that only a small number of these companies have invested over one-third of such reserves while the rest of them have not done so.

They suggested that Government should consider seeking special dividends from those PSUs which were holding high levels of liquid reserves.