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Kelkar's back! With more tax reforms

July 23, 2004 17:16 IST
Last Updated: July 23, 2004 19:46 IST

In a bid to overhaul the tax system, the Kelkar panel on Friday suggested hike in income tax exemption limit to Rs 100,000, reduction in corporate tax rate to 30 per cent and a single countrywide goods and services tax.

The task force, set up to implement Fiscal Responsibility and Budget Management Act, proposed a 3-tier customs duty structure of 5, 8 and 10 per cent in a bid to bring down import tariffs to the Asean levels.

The panel, headed by Finance Minister's Advisor Vijay Kelkar, also proposed sweeping measures including the removal of tax exemptions, simplification of tax procedures and reduction in cost of compliance to wipe out revenue deficit and lower fiscal deficit to less than 3 per cent of GDP by 2009.

Apart from raising the income tax exemption limit, the panel proposed 2-tier rate structure -- 20 per cent for income of Rs 100,000-400,000 and 30 per cent for income beyond Rs 400,000.

Terming the goods and service tax as the most important proposal, the panel said it would be a "single national value-added tax" that would replace excise, Cenvat, and services taxes levied by the Centre and sales tax and octroi levied by states.  

A standard GST of 12 per cent has been proposed to replace the Cenvat of 16 per cent.

This is to be supplemented by a standard state GST (VAT) of 8 per cent.

"The 20 per cent total VAT is comparable to the OECD standards. The cooperative effort proposed in the report between Centre and states for GST would ease complexities of tax administration as seen by companies and state governments," it said.

The Kelkar task force on FRBM is different from the previous task force on tax reforms which recommended far reaching changes in direct and indirect taxes.

The new task force has fine-tuned the previous reports particularly on indirect taxes.

On corporate tax, the panel suggested cut in the rate from 35.875 to 30 per cent for domestic companies besides reduction in depreciation rate from 25 to 15 per cent.

"All existing tax incentives to be 'grandfathered' for existing units but removed for new units," it said.

On income tax, the panel said the exemption limit should be hiked to Rs 100,000 but standard deduction available to salaried class should be abolished.    

While favouring continuation of exemptions relating to housing loans and those available to senior citizens and women, the Kelkar panel strongly recommended removal of exemptions under Section 10A, 10B, 80IA and 80IB of the Income Tax Act.

It also said that the savings incentives should be rationalised into a single 'EET (exempt during collection, exempt during accumulation and tax during withdrawal).

"Savings upto Rs 100,000 a year would be eligible for this deduction. Consequently, tax concessions such as those under Section 80L for interest income should be abolished," it said.

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Number of User Comments: 11

Sub: necessary for taxing the higher income group

why the middle income salary earners shouldn't get the benefit forstandard deduction? they should be given this benefit. however, the taxable rate above Rs. 8 ...

Posted by raman seshadri

Sub: Kelkar task force recommendations

Comments on Kelkar Task Force Report As usual the Kelkar task force recommendations on Personal Income tax are heavily biased in favour of existing IAS ...

Posted by Aswath Mahendra

Sub: Tax Reforms

I support suggestion of hike in tax exemption limit to 100000 and the slab of 20% for income upto 4Lac and 30% for income more ...

Posted by Ketan Gandhi

Sub: WhyNOt

As we all know that how govt. is putting so many taxes on citizens here. I want ot ask few questions i.e. 1.) Why govt. ...

Posted by Rajiv Sehgal

Sub: CII,FICCI goes gaga, even as they lobby for concessions - who is on Individuals side?!?

Dr Kelkar's final report, under active consideration by Finance Ministry for implementation come April 2005, starts off with a very bad premise. In his 'Summary ...

Posted by Chandrasekar K


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