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Home > Business > Special

Caught between Kelkar and Jaswant

P Vaidyanathan Iyer | February 04, 2003 16:03 IST

Finance Minister Jaswant Singh is likely to present an expenditure Budget this year. This is not because of the Planning Commission's argument for pump priming for at least one more year.

It is also not because of the impending elections in 10 states this year and general elections next year.

It is because of Rajnath Singh committee's examination of advisor to finance minister Vijay Kelkar-led task force's recommendations on direct and indirect taxes.

The Rajnath Singh committee, which included Jagdish Shettigar, P N Vijay, V K Malhotra and Kirit Somaiya amongst others, has given 21 specific recommendations besides 10 other suggestions in its report submitted to Jaswant Singh.

A senior revenue department official said, "The committee has only made the finance minister's job more difficult."

In their two advisory reports, Raja Chelliah and Parthasarthi Shome had recommended all that was required to reform the country's tax structure and policy.

Kelkar's task force reiterated these recommendations.

In asking Kelkar to prepare the report on direct and indirect taxes, the finance minister achieved his objective of lending more transparency to the budgetary process by kindling an informed public debate.

The advisor and his task force members toured the country hearing the views of economists, journalists, industry chambers and so on and in turn justifying their recommendations.

But the task force's presentation before the Rajnath Singh committee has not cut much ice. In fact, it has left the finance minister with little scope for manoeuvre even as he firms up his revenue proposals.

The committee has praised Kelkar for his recommendation to increase the tax exemption limit but in the same breath said that standard deduction and Section 88 benefits on small savings be retained.

The revenue department is actually caught in a bind. And in the end, it is unlikely that Jaswant Singh would either achieve tax reforms as recommended by Kelkar in total or satisfy his party.

Many in the finance ministry fear a 'pick and choose' from Kelkar and Rajnath Singh's recommendations, that could potentially cause the exchequer a lot of damage.

If Rajnath Singh's suggestions -- of increasing the income tax exemption limit as recommended by Kelkar to Rs 1 lakh (Rs 100,000), doing away with dividend tax and retaining standard deduction -- are implemented without eliminating exemptions on small savings, it is likely to cause a revenue loss of over Rs 22,000 crore (Rs 220 billion).

Rajnath Singh has criticised the Kelkar report on its proposal to tax farm income. It has also opposed removing deductions in respect of interest on housing loans and asked for maintaining the status quo on standard deduction for employees.

It has said that unless a comprehensive pension scheme is introduced, tax incentives for long-term savings under Section 88 should be retained.

It has also recommended continuing incentives for special export zones, backward areas and infrastructure even as it supported the abolition of dividend tax, which would lead to a revenue loss of Rs 10,000 crore (Rs 100 billion) to the exchequer.

Surprisingly, the committee is silent on Kelkar's suggestion about a two-rate structure for personal income tax and also on its recommendation to do away with minimum alternate tax.

Members in the Rajnath Singh committee claim that they have restricted themselves only to those aspects of the Kelkar report that directly affect the people.

However, the committee has made its suggestions on the corporate tax front too. It has rejected the Kelkar proposal for uniform depreciation rates under the Income Tax and the Companies Acts.

It has also called for the re-introduction of investment allowance and 100 per cent depreciation for  infrastructure companies.

The two reports actually mean a lot of work for the revenue department.

And for Jaswant Singh too, who not only faces the challenge of increasing tax collections but also of fulfilling the his promise of putting more money in the house-wife's purse.
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