Govt addressing tax incentive issues, says Shome

Advisor to Finance Minister Parthasarthi Shome today said the government was trying to address the issue of number of tax exemptions and incentives.

"There are a plethora of exemptions which erode the tax base-area-based exemptions which affect both income tax and excise, islands of exemptions created in special areas, sector-specific or goal-specific incentives," Shome said while speaking at a tax seminar here.

Shome, one of the key officials in the Budget exercise, said the government had already done a lot of rate corrections in the last year's Budget.

"As the finance minister has also said, we don't want to tinker with a system which is working well," he said, adding that even for the controversial Fringe Benefit tax, the finance ministry had issued a clarification comprising 107 questions.

He said the government was also working towards reducing the rate of withholding tax to lessen the need of entering into bilateral tax pacts to avoid double taxation.

Referring to the initiatives undertaken by the government last year Shome said the effort had been to scale back rates and remove exemptions.

"We also want to make the administration of direct tax more transparent as the revenue from direct tax is set to exceed indirect tax. This year direct tax collections will cross five per cent of the GDP, for the first time," he said.

Shome said changes in the depreciation rates effected last year had led to a spurt in growth of capital goods. "The rate of growth of capital goods has increased from five per cent to around 30-35 per cent this year," he said adding that this proved that the tax structure was pro-new investment.

Referring to Value Added Tax, Shome said efforts were on to remove all the inter-state taxes within the next two years as part of the move towards a national VAT. Shome said the states were concentrating on the reduction of the Central sales tax this year.