The Hindu : Kelkar report

Online edition of India's National Newspaper
Friday, Jan 03, 2003

National

National

Kelkar report

By Alok Mukherjee

NEW DELHI JAN. 2. The BJP is all set to queer the pitch for the Union Finance Minister, Jaswant Singh, by opposing the Kelkar task force recommendations for abolishing tax incentives for savings and supporting the move to double the income tax exemption limit and the new suggested tax slabs and rates.

The committee set up by the party under the chairmanship of its general secretary, Rajnath Singh, to study the recommendations of the task forces, has convened a meeting here on Sunday to take a final view on the report. This committee had earlier decided to finalise its report before the final recommendations of the Kelkar committees were made public, but decided to postpone it at the last-minute when it got out that the task force on direct taxes had not watered down its original proposals. The final report only provided further elaboration of the logic behind each recommendation contained in the consultation paper.

It now turns out that the Kelkar task force did not dilute its original proposals despite the public noises made by the BJP after the consultation papers were released because the Finance Minister had apparently made it clear to Dr. Vijay Kelkar to give his "honest views'' on the matter. On his part, the Minister offered to ``take care'' of the party's views.

But with the BJP now opposing proposals on housing loans and savings-related tax breaks while supporting the proposed enhanced tax exemption limit and the two-tier tax slab, the Finance Minister is likely to face a fiscal dilemma. The proposed increase in exemption limit and the new tax slabs are estimated to result in a revenue loss of Rs. 7,900 crores in a year for the Government. But if the tax exemptions continue, the loss would be much higher.

Similarly, on the tax incentive on housing loans, the Kelkar task force estimated that it is resulting in a "subsidy'' of Rs. 45,000 a year for a person building a Rs. 20-lakh house. Consequently, it suggested bringing down the current ceiling on housing loans eligible for tax relief from Rs. 1.5 lakhs a year to Rs. 50,000 to reduce the "subsidy'' proportionately. But if this proposal is not accepted, then the Government's revenue burden would continue while its revenue loss from tax rate changes would mount.

The BJP has, however, argued that the existing loans for housing should continue on two grounds — on the principle of continuity since the Government had extended this concession only recently and it should not withdraw it immediately as that would adversely affect those who took advantage of the Government facility. Secondly, the BJP feels that flats of the middle class people cost Rs. 12-15 lakhs which means a loan of not less than Rs. 10 lakhs.

On withdrawal of the tax relief on savings, the party feels that the Tenth Plan targets call for a major boost to savings and withdrawing the relief at this stage would jeopardise this. Alternatively, it feels that the Government would be able to garner more tax revenues if it tries for a higher growth rate for the economy.

The BJP's strong views on the Kelkar proposals have, therefore, made Mr. Singh's position quite delicate. Accepting the Kelkar recommendations in toto would be politically disastrous while accepting the BJP's amended proposals could land him in a fiscal mess.

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