The Telegraph
Since 1st March, 1999
Email This Page
Fiscal overhaul with a human face

New Delhi, June 1: The finance ministry is working on a package of tax and expenditure reforms, including re-targeting of subsidies, moving towards a single excise rate, cutting down the number of direct and indirect tax exemptions and bringing in a roadmap for introducing value-added tax (VAT).

Senior North Block officials said the package, which will have to be cleared by both the finance minister and Prime Minister Manmohan Singh, would progressively move towards re-targeting fertiliser and food subsidies.

“There is a need for better targeting of the public distribution system and specific programmes for the poor like the ‘food for work programme’, mid-day meals and nutritional support to pre-school children and women,” officials said.

The new schemes are likely to bring grains to the very poor, even as the middle class will be charged economical rates.

The government also wants to shift grain silos to food-scarce areas and cut down excess stock holdings in north India. This move alone is expected to save the government about Rs 5,000 crore from the Rs 24,000-crore food subsidy bill.

The current policy of moving progressively towards a single excise rate will be continued while tightening the existing exemptions and initiating measures for improving tax compliance. At the same time, all exemptions under corporate taxes will be progressively eliminated.

Other steps include comprehensive computerisation of the income tax system and mandatory usage of tax identification numbers in monetary transactions.

The ministry wants both the Centre and the states to work towards an improvement in the tax/GDP ratio through the inclusion of services in the tax base, removal of tax exemptions and concessions, harmonisation of tax rates, tightening of tax administration, and adoption of the planned nation-wide integrated VAT regime.

The ministry wants VAT to be introduced in all states at the earliest to facilitate its integration with the Central VAT and to bring about a harmony in tax rates levied by different tax jurisdictions.

However, officials cautioned that nation-wide VAT was unlikely to be implemented quickly. Significant work had been done on VAT last year but the tax measure was put on hold by the BJP worried by the opposition to it from the trading community, which was among its staunchest electoral support bases.

An enabling bill on service tax, with the stated objective of helping states widen their tax base as they will lose out on revenue by introducing VAT, has already been pushed through Parliament.

“We will now work towards addressing the remaining concerns of the states before bringing in a nation-wide VAT,” officials said.

States will also be asked to put a cap on borrowings at the current level of outstanding debt-to-GDP ratio or lower, so that it does not blow out of proportion. This will help the states to reduce the burden of interest payments.

The privatisation of public sector units, especially those which are suffering losses or are likely to turn into loss-making units or ones that do not serve any social or economic purpose, will remain among the ministry’s objectives.

Plans on increasing public spending as well as bringing in public-private partnership in the infrastructure sector will also receive due importance.

Email This Page