More clutter

Posted on May 3, 2010 | View 550 | Comment : 4

Tax structure gets vitiated further.

Finance minister Pranab Mukherjee has made token concessions for sectors like housing and air travel in the official amendments to this year's Budget. Sure, giveaways of Rs 400 crore are paltry in the Centre's Rs 10 lakh crore Budget.

However, they send out the wrong signal, on two counts. One, the government doesn't care about simplicity and uniformity in taxation of goods and services; and two, individual industries and sectors are welcome to lobby for and obtain individually tailored duty regimes.

Concessional import duty rates, exemption from service tax, lower rates of excise duty, etc, are enemies of tax rationalisation. They spell patronage and arbitrariness and distort the tax structure.

Ideally, the government should have reversed commodity-specific and sector-specific duties and reverted to uniform rates of duty. It has, however, faltered here.

The Budget itself offered up a clutter of rates.

The changes brought to the Finance Bill show that the tax system has been cluttered even more, with multiple import duty rates, lower excise rates and service tax exemptions to specific sectors in an arbitrary way.
This will also hamper the proposed move to a harmonised goods and services tax countrywide. If the Centre itself cannot have the discipline to have uniform rates of indirect tax for goods and services that have little rationale for being subjected to differential tax treatment, how are 28 state governments expected to agree on uniform rates on their part?

The model GST, recommended by the Thirteenth Finance Commission (ThFC) and accepted by the Centre in principle, allows for no exemptions other than a small common list that includes health and education.

The government should try to implement ThFC recommendations with the concurrence of the empowered committee of state finance ministers at the earliest.

A course correction is possible even this year, as changes in indirect taxes can be done outside the budget. Multiple indirect tax rates create room for lobbying, patronage and, worse. Surely, that is not what the government wants.

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Comments (4)

  • We have to look at the things from the broder prospective of total tax collections and their deployment for the purpose for which they are meant. One of the purposes of taxation is to raise the resurces for utilising the same for building the much needed infrastructure for a developing country like India,which in turn would provide the sources of income to many unemployed people in our country,while providing much better life for the future generation.In this endavour the Government many a times is faced with the resources crunch due to the low tax base(the number of tax payers) in our country and due to fact of large amount of unaccounted money mostly in the construction industry,which goes untaxed thus adding to the resources crunch. Recently Government has come out with a proposal ...See More

    Posted by Gopabandhu Satapathy , Chartered Accountant at G.Satapathy & Co | 04 May, 2010

  • You have a valid point. This is a clear case of tinkering with the tax structure. Government should stay focussed on making the fiscal system sound through proposed DTC and GST framework, and resolve the Centre-State squabble on revenue sharing issue.

    Posted by Dipak Thakker,|03 May, 2010

  • Sectoral Concessions ,eventhough paltry as in this case,is a welcome move to set right the imbalances.However Industry specefic concessions are to be discontinued as it leads to lobbying as pointed out.
    Finance minister should also discontinue tampering with rates and should follow uniform rates. However sectors like housing,agriculture or exports across the boarder,should have concessions ,depending on the market conditions.
    This should be extended not by reducing the Tax or excise rates but by allowing higher weighted expenses.The validity of such exmptions are limited to one Assessment year and reviwed and continued at a different weight in subsequent years.
    ...See More

    Posted by Sasidharan.Balakrishnan , General Manager(F&A) at Keld Ellentoft India Pvt Ltd | 03 May, 2010

  • Due to diverse rates, there is absence of level playing field accross industries.

    Posted by Vandana Gupte,Addl GM at D P Jain & Co Infrastructure Pvt Ltd|03 May, 2010

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