Govt not for tax rate hike, base expansion on anvil

In comments that may be seen as pointers to the forthcoming Budget, a senior government official today said that raising tax rates was no more an option.

"We are not going to raise the tax rate but are looking at increasing the tax base over a period of time", Revenue Secretary K M Chandrasekhar said at the India Economic Summit organised by CII and World Economic Forum.

Another senior government official, who also spoke at the inaugural session of the Summit, favoured greater liberalisation in retail, banking and other sectors of the services industry to put the Indian economy on a higher growth trajectory.

"The services sector contributed 54 per cent to the economy and in next five years it will grow to 60 per cent. The services sector is growing at seven per cent domestically and it can grow at a higher rate with further liberalisation of regulatory framework," Ajay Dua, secretary, Department of Industrial Policy and Promotion, said.

While growth was propelled by services and manufacturing, labour intensive sectors were not expanding that fast, Dua said, pointing to the footwear industry. He said agriculture, which supports 65 per cent of the population, has grown at just three per cent in the last decade.

Dua said the credit delivery system had failed the agriculture system, leading to a large number of suicides in Andhra Pradesh and Maharashtra.

Chandrasekhar said the government sees widening of the tax net as the new mantra for generating resources.

"We need systemic changes in the machinery for enlarging the tax base," he said. There is also a need to further rationalise exemption and continue to moderate the tax rate both direct and indirect taxes, he added.

"As we go along, there could be further lowering of indirect taxes", he said in the context of tax rates being still higher than the international average.

Over the years, dependence on indirect taxes has come down substantially from 35 per cent of the total revenue in 1990, to 17 per cent in 2006.

However, the share of direct taxes has gone up from 19 per cent to 45 per cent during the same period, he said. This year, the government expects tax GDP ratio of 11 per cent as against over 10 per cent in 2005-06.

To study the cost benefit analysis of tax exemption, the government has entrusted the task to Indian Council for Research on International Economic Relations and National Institute of Public Finance and Policy.

"First, we have to look at it (exemptions)" before taking a decision on withdrawing them, he said.