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Kelkar offers to review proposals

BS Economy Bureau in New Delhi

Adviser to the finance minister Vijay Kelkar has indicated that the task forces on tax systems would smoothen out the proposals that have invited criticism.

He told a seminar on the reports organised by the Federation of Indian Chambers of Commerce and Industries today that he would examine the areas that have been objected to by both corporate sectors and individuals before finalising the two reports.

He said: "This is only a draft note and wherever there are rough edges, we will have to smoothen it."

But Kelkar told the business leaders that there were very strong reasons for the recommendations of the task force.

He said it was because of the complexity of the system that the tax collections had declined.

He added that the tax system had become regressive that higher income corporates had lower personal income tax by obtaining various tax exemptions.

The adviser said the need to reduce transaction cost was paramount and said the cost of risk capital has not been addressed at all in the current tax system.

He said the task force had decided to reward output rather than subsidise inputs which would be possible only by bringing down the cost of risk capital.

He said if that was made possible corporate tax rates can be brought down to 30 per cent from the present 35 per cent apart from suggesting abolition of dividend and capital gains taxes to create a level playing field.

Referring to the impact on savings because of the proposed elimination of section 88 in income tax act, Kelkar said a tax regime which gave concessions to savings at all the three stages - contribution, accumulation and withdrawal was irrational and actually led to a fall in aggregate savings for the economy by raising interest rates and therefore costs of capital for the economy.

S M Bhatnagar, one of the members of the task force, said the present system had many inherent lacunae as regards the export incentive schemes. He said the committee had however recommended continuing with duty drawbacks.

Kelkar also said he favoured the continuation of the one-by-six scheme to widen the income tax base and increase the revenue by targeting the middle income class and not merely the salaried class.

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