Income-tax slabs to be restructured

NEW DELHI: The ground is being readied for the next stage of tax reforms: Bringing all services under the tax net and integrating taxation of all goods and services into a consumption-based value added tax . After the two big-bang reports on direct and indirect tax reforms, Vijay Kelkar, advisor to the finance minister, is giving the finishing touches to a third one on policy initiatives to wipe out the revenue deficit by â€˜08. Elimination of the revenue deficit is a commitment made in the fiscal responsibility and budget management (FRBM) legislation, and a goal accepted by all major political parties, including the Congress and the Left. The report of the task force on FRBM, to be presented to Jaswant Singhâ€™s successor, is set to recommend bringing all services â€” barring a few in the negative list â€” under the tax net, introducing a comprehensive goods and services tax (GST) legislation, re-adjusting income tax slabs and scrapping direct and indirect exemptions. The widening of the service tax net alone would enable the government to garner between Rs 45,000 crore and Rs 50,000 crore by â€˜07-08, according to internal projections. Although services contribute to 50% of the GDP, the government garnered only around Rs 7,500 crore from service taxes last fiscal. The Congress party, which wants to raise the tax-GDP ratio to 18% by the end of the decade without tinkering with tax rates is not averse to a further widening of the service tax net. â€œTaxation of services and improving the efficiency of tax collections will bolster the revenue base. The existing direct tax rates are low enough with exemptions. We need to knock out tax holidays and have a clean and transparent tax systemâ€�, Jairam Ramesh, convenor of the Congress partyâ€™s economic cell told The Economic Times . According to him, the transaction costs for an honest tax payer are high not because of the tax rates per-se, but the manner in which taxes are collected. He is of the view that Kelkarâ€™s policy prescriptions on personal and corporate taxes need to be implemented and not just the procedural reforms. The only exception, of course, is the recommendation to tax farm income. The task force on FRBM is understood to have taken a leaf out of the recommendations made by the Govinda Rao committee on service tax in â€˜00. The panel recommends bringing all services under the service tax net, except those in a negative list covering public health, public utility services like water, sewerage, all public services of the government barring railways and services exported out of India. It had made out a case for integrating the tax on services with those on goods all the way up to the retail stage to evolve a destination-based consumption type retail stage value added tax. Canada, for instance, has a goods and services tax which is a multi level state tax. The tax is a 7% charge on all goods and services except essentials like food, medical services and rent. Exports are exempt. Low income individuals can also receive a GST rebate calculated in conjunction with their income tax.

Income-tax slabs to be restructured

All services will come under the tax net and direct and indirect tax exemptions will be scrapped.

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