Business

Centre keen to raise direct tax-GDP ratio

NEW DELHI: The Government on Wednesday unveiled the limited options it has in containing the fiscal deficit and inflation through a combination of higher direct tax-GDP ratio from the current level of 6.5 per cent, eliminating incentives and exemptions in a moderate taxation regime and taking deterrent action against tax evaders.

Addressing a FICCI workshop on ‘Issues concerning direct taxes and goods and services tax’ here, Revenue Secretary P. V. Bhide pointed out that the fiscal imperatives before the country were such that there was no choice but to control the fiscal deficit, not just as an economic necessity but also as a legal obligation.

“Today, we are not in a position to cut non-Plan expenditure and mobilise additional resources through indirect taxes. Cutting non-Plan expenditure is difficult in the short run, more so at the present situation of our political cycle. The option of additional resource mobilisation through an increase in indirect taxes was not available as the rates today were minimalistic. In fact, indirect taxes need to be brought down to control inflation,” he said. Citing figures, the Revenue Secretary noted that out of the current total tax-GDP ratio of 17.5 per cent, the Centre’s tax-GDP ratio was 12.5 per cent. While the direct tax-GDP ratio stood at 6.5 per cent, direct taxes accounted for 35 per cent of all taxes put together.

The share of direct taxes in the overall tax collections has to be seen in the backdrop of the global norm of 55-60 per cent, he said. “Since indirect taxes have to be brought down to control inflation and to honour international obligations in the context of a globalising economy, the share of direct taxes in the total GDP will necessarily have to go up. We will try to do it as easily as possible,” Mr. Bhide said.

Pointing to the 35-40 per cent growth in direct tax collections in the last two years, Mr. Bhide said: “This is a welcome sign, compared with the previous years when additional resources arose only from additional taxation. This time, growth has also been due to greater compliance and simplification of tax rates…The option now is to eliminate incentives and exemptions and step up deterrence.”

Tax incentives, which are in the nature of subsidies, that have outlived their utility and those that are not functional, will have to be done away with in the future, he said.

© Copyright 2000 - 2009 The Hindu