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A repeat performance

THE FINAL of the Kelkar task force on direct taxes is a virtual replay of its draft, with more justification for its earlier recommendations. The changes are too nominal and too thin to meet the criticism of earlier suggestions levelled by different sections of the public.

The salaried sector, if the report is accepted in toto, will have to get reconciled to the loss of standard deduction, tax rebate under Section 88 and deduction under Section 80L, but then with an increased exemption limit of Rs. 1 lakh along with a reduced rate of tax for incomes between Rs. 1.50 lakhs and Rs. 4 lakhs at 20 per cent instead of present 30 per cent even as earlier proposed.

The complaint that the salaried sector is discriminated is challenged on the ground that they have enjoyed and will continue to enjoy the exemption available for travel expenses between residence and office, concessional valuation of residential accommodation and use of motor car for personal purposes, exemption for medical reimbursement up to Rs.15,000, interest free loan for medical treatment, use of telephone including mobile phone and exemption for house rent allowance subject to conditions, but not forgetting to point out that salaried employees also sometimes evade tax by getting rent, an euphemism employed by the Kelkar Committee for bribe.

Concessions suggested for retention

The concessions to be retained as earlier proposed are only those for Mediclaim premium under Section 80D, educational loan under Section 80E, both diluted by substituting maximum deduction of Rs.15,000 and Rs. 40,000 respectively by maximum rebate of Rs. 3,000 and Rs. 4,000 respectively, besides the deduction for medical treatment of specified illness under Section 80DD and for permanent disability under Section 80U.

The only further relaxation that is recommended in the final report in personal taxation is the retention of deduction under Section 80CCC with the deduction doubled from Rs.10,000 to Rs. 20,000 being contribution for an annuity policy as pension plan sold by the insurer.

Interest deduction: Half-way agreement

Abridgement of deduction of interest against self-occupied property comes in the form of the proposed substitution of the ceiling at Rs. 50,000 for deduction of (mortgage) interest on housing loans as against the present ceiling of Rs.1.50 lakhs. The better option, it is suggested, is reduction of interest rate for loans below Rs. 5 lakhs by 2 per cent with repayment period from 10 to 15 years.

Senior citizens, instead of the present tax rebate of Rs.15,000 under Section 88B will have a higher exemption limit of Rs.1.50 lakhs. Women will lose the tax rebate of Rs.5,000.

The recommendation relating to abolition of resident but not ordinarily resident will also stand. So is the suggestion for integrating agricultural income.

No to staggered withdrawal

The alternative suggestion to stagger withdrawal of tax concessions has been emphatically rejected. The main reason is that the proposed enhancement of limit is not possible without adjustment for loss of revenue on this score, since tax reform proposals are designed to be arithmetically revenue neutral.

Stress is laid on the fact that the taxpayers will have more disposable income with better choice of investment at their option. It is pointed out that this must be understood with reference to the corporate tax reform, since the proposal to do away with tax on dividend, exemption for capital gains on listed shares and reduced tax on companies will make investment in company shares, though risk-bearing, more attractive. This will not be solace enough for the middle class investors, who do not feel comfortable, except in bank deposits and Government oriented investments and further because the scope now offered for savings by merely rotating the savings without addition to net savings will no longer be available.

If final the report is considered by the taxpayers especially those in the salaried sector as mulishly obstinate, it will not be for lack of a fervent attempt to justify the same in the larger interest of the economy in the context of the need for sacrifice by some sectors for ensuring horizontal and vertical equity as between taxpayers in the same class of income and those in different tax brackets.

The report reiterates that it is not possible to stagger the withdrawal of incentives, if the exemption limit has to be immediately increased, the tax rate reduced, the surcharge dropped, disposable income enhanced, distortion as between different means of savings removed, funds and investments made available and regulated by market forces, distortion caused by indiscriminate incentives neutralised, administrative resources better employed, abuse of concessions prevented, scope for corruption and/or rent seeking activities reduced and cost-effectiveness secured.

Further arguments are sought to be given with reference to the experience of other countries and the reports of earlier committees, whether it be of Rajah Chelliah, Parthasarathy Shome or Y.V.Reddy.

Now the final report is available for further reaction from the public and interested parties and for the Finance Minister to accept or reject in parts or as a whole.

S. Rajaratnam

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