The government should phase out all cesses and surcharges on taxes and securities transaction tax, fringe benefit tax and introduce a new income tax code, the Economic Survey said.
The Survey, tabled in Parliament on Thursday, also called for reviewing commodities transaction tax, which was proposed in the Budget for 2008-09 but not notified.
"Review and phasing out of surcharges, cesses and transaction taxes (such as CTT, STT, FBT). Incentivise states to do the same with respect to stamp duties," the survey said.
The Survey also asked for rationalising the dividend distribution tax so that dividend is taxed in the hands of receiver.
Surcharge at a rate of 10 per cent is levied on those earning at least Rs 10 lakh per annum and corporate income tax.
Industry is demanding removal of the surcharges to make calculation of corporate taxes simple and increase disposable income of people.
Education cess is levied at the rate 3 per cent on taxes. Besides, cess at the rate of Rs 2 per litre is levied on petrol and diesel to fund national highways, rural development and state roads.
Noting that economy had slowed to 5.8 per cent in the second half of 2008-09, the Survey said economic resilience and necessary policy stimulus helped in achieving a growth of 6.7 per cent and hoped that the current fiscal could see and growth of 7 to 7.5 per cent.
Though there are indications that the economy may have weathered the worst of the downturn due to resilience and various policy measures, the situation "warrants close watch on various economic indicators including impact of the economic stimulus and developments taking place in the international economy."
Pointing out that fall-out of the global financial crisis has been palpable in the industry, trade and services sectors, it said the government would have to "squarely address the short-term and long-term challenges" to achieve tangible progress and ensure that outlook remains firmly positive.
Suggesting bold economic reforms in various sectors to spur growth, the Survey said government should decontrol petrol and diesel prices, meaning that they be linked to global fuel prices.
Besides, it added, the government should also develop a policy response system and financial buffer for use when the diesel prices rise above $80 per barrel in the international market.
The Survey also underlined the need for reform of petroleum, fertiliser and food subsidies to reduce leakages and ensure that benefits reach the intended persons.
