The Telegraph
Since 1st March, 1999
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New fiscal fire-fighting kit ready

New Delhi, Oct 13: The finance ministry has finalised a tax and expenditure reforms package for the next five years as well as a slew of measures that it intends to recommend to the states.

The package is likely to be taken up by the Prime Minister in his meeting with state chief ministers to be held on October 18. Although opposition is expected from some quarters, many states, including Bengal, are believed to be in agreement with the measures outlined.

These include comprehensive computerisation of the income tax system and making universal usage of tax identification numbers in monetary transactions mandatory to facilitate improved enforcement of the income-tax administration. At the same time, it calls for progressively eliminating all exemptions under corporate taxes.

The current policy of moving towards a single excise rate will continue even as efforts are made to tighten up on existing exemptions, particularly those for small enterprises, to improve tax compliance.

At the same time, the government will gradually slash fertiliser subsidies and eliminate those on petroleum. Food subsidies will also be better targeted through 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.

The ministry has also suggested an improvement in the tax/GDP ratio of both the Centre and the states through inclusion of services in the tax base, removal of tax exemptions and concessions, harmonisation of tax rates, tightening of the tax administration, and adoption of an integrated VAT regime.

For states, the ministry is recommending cuts in staff strength by adopting a policy of net attrition and constitution of a pension and amortisation fund to make committed payments like terminal benefits and debt servicing self-financing.

Further, it points out that privatisation of state public sector units, especially those that are making losses and do not serve any social or economic objectives, must be carried out. States will also be asked to switch over to ad valorem rates of royalty on minerals.

States will also be asked to set ceilings on borrowings to the level of current outstanding debt to GDP ratio or lower, so as to attain a non-rising outstanding debt to GDP ratio, thereby reducing the burden of interest payments.

The ministry also wants value added tax (VAT) to be taken to states soon to facilitate its integration with the central VAT and bringing about harmonisation of tax rates levied by different tax jurisdictions.

At the same time, user charges will have to be raised to cost-recovery levels and made acceptable by a communication campaign to convince the public that such a system would be in their own overall interest.

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