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At your service, the taxman's net

New Delhi, Feb. 25: The Congress-led government may widen its tax base to include more services while re-targeting subsidies to cut down on spending in a bid to keep red ink off its budget balance sheet.

A finance ministry report card on the economy, the Economic Survey, said: 'The tax base needs to be widened through increases in the share of services in tax revenues, removal of exemptions ... and an enforcement mechanism that is non-discretionary, transparent and effective.'

Services, which make up a 51 per cent of the country's GDP, account for just 4.5 per cent of the total tax mop-up and the indicators from the annual survey are that North Block is likely to increase the number and range of services which are covered by the 10 per cent service tax.

It also seeks to 'simplify and streamline' the current tax system through innovative changes in policies, procedures, laws and dispute settlement mechanism, which see various kinds of exemptions being phased out.

The government is also seeking to pare both excise and customs duties to those nearer the Asean levels. This would mean the average or peak rate for excise would come down from a current 16 per cent and for customs from a current 20 per cent.

The fiscal imperative for this is obvious. The government's revenues grew by 18 per cent this year against a target of 25 per cent. The fiscal deficit figure, which is expressed as a ratio of the GDP, should have bloated but for two facts: India's national income grew by a spanking 6.9 per cent and most government departments were unable to spend their budgeted amounts.

A report prepared by the National Institute of Public Finance & Policy on fine tuning subsidies is likely to be given a serious look.

'The way forward is in fulfilling the NCMP objective of targeting subsidies sharply at the poor, carrying on with pension reforms, maintaining a benign interest rate regime through lower government borrowings, effecting a shift in the composition of expenditures in favour of plan capital expenditure and reforms in public service delivery," says the survey drafted by chief economic adviser Ashok Lahiri.

Officials maintain that the government will try to carry forward an agenda to rationalise the minimum support price of foodgrain paid to farmers and instead institute a system of price insurance to ensure food security for the country and income security for farmers.

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