CAG for better tax compliance

A study by the Comptroller and Auditor General observed that fiscal deficit trends were not different from those prevailing in the 1980 and 90s, and that the present high levels were due to absence of an efficient tax system, resulting in enlarged borrowings and debts.

The staff paper, 'Fiscal Liabilities (Unions and State): Growth and Sustainability', prepared by the International Centre for Information and Audit, under CAG, also said there was a need to go beyond eliminating revenue deficit by 2008 as mandated by the FRBM Act to unlock resources for development works.

With aggregate expenditure declining from an average 23.44% of GDP during second half of 1980s to an average 19.38% during second half of 1990s, it was reasonable to expect that the "extraordinary" contraction of over 4% will engender a "significant" decline in the fiscal deficit, the paper said.

Low tax-GDP ratio, which may be due to narrow tax base, tax evasions and exemptions or poor compliance and lax tax administration, had made public borrowing a "soft option."

"Cumulative impact of this fiscal stance is now an enlarged debt and a low asset back-up for the liabilities," it said adding hike in tax-GDP ratio by better tax compliance, improved recovery of user charges and expenses prioritisation remain critical to fiscal sustainability.