Task force for end to tax rebates

The report is in the form of a consultation paper which will be open for comments and inputs till November 20 after which depending on the suggestions, a final report will be prepared. The Task Force on was set up in September under the chairmanship of Dr Vijay Kelkar, Adviser to Finance Minister Jaswant Singh, and submitted its Consultation Report to Singh on Saturday.

Kelkar said that with the two tier tax slabs, while all exemptions would come to an end, the income limit exempt from tax would go up to Rs one lakh.

Tax rebate schemes under section 88 of Income Tax Act for savings, section 88B for senior citizens and section 88C for women ( who are allowed additional Rs 5,000 standard deduction) and exemptions under section 80L for interest income and dividends, and section 10 for interest income from bonds, securities and debentures.

The consultation paper on direct taxes also mooted wide ranging reform of corporate tax by reducing the rate to 30 per cent from the present 36.75 per cent for domestic companies and to 35 per cent from 40 per cent for MNCs, besides abolition of dividend tax and minimum alternate tax (MAT). The panel has also proposed abolition of wealth tax and long-term capital gains tax while scrapping of standard deduction and tax incentives on savings.

Kelkar said that the Indian taxation system was in the grip of exemption- raj ‘which leads to leakages, unaccountability and lack of transparency.’’ Kelkar said the task force was in favour of ‘big-bang’ or a one-time approach for implementation of its direct tax reforms.

When asked if these recommendations were practical given the political compulsions of most governments, Kelkar said ‘‘we have provided a second option of phasing out the exemptions and reduction in tax rates in a three-year period.’’

The task force, which made its recommendations in two volumes, suggested a tax information network (TIN) system through the nationwide network of National Securities Depository Ltd (NSDL) to tone up tax administration, enabling taxmen to focus on inspection and assessment only.

On the issue of taxing agricultural income, Kelkar said ‘‘the agriculture income of non-agriculturist were being increasingly used as tax-shields for laundering funds resulting in leakages of revenue of Rs 1,000 crore annually.’’ And it is these which will be axed first.