Kelkar Committee: Iniquitous Proposals
The recommendations of the Kelkar Committee on direct and indirect taxes are in line with the present government’s economic policy of rewarding the rich with tax cuts while putting the burden on the middle classes and the common people by cutting their savings and the returns earned from them. Among the sops to the rich, corporate tax rate is to be reduced to 30 per cent for domestic companies and the tax on dividends withdrawn. The richest sections will need pay only a 30 per cent income tax.
With the tariff on imports to be brought down to a maximum of 10 per cent in a short span of time, apart from attacking domestic production, customs revenues would be adversely affected. Added to this there would be the revenue loss from the reduced direct taxes. Overall, the recommendations would further intensify the decline in the tax-GDP ratio which set in since the economic reforms began.
The Kelkar Committee’s recommendations are iniquitous as it seeks to equate different types of tax exemptions. Exemptions on small savings and house construction loans that encourage savings and housing investment by the middle classes is equated with the tax concessions and exemptions that benefit the rich (such as export earnings). Exemptions should be reduced or done away with only in the case of profit earners who are not being taxed even though they derive many benefits from facilities provided by the State at low or no cost. At a time when interest rates are falling, doing away with tax benefits aimed at encouraging savings will adversely affect the household savings rate and make savings difficult for the middle class.
The recommendation of an agricultural income tax to deal with the revenue loss that would accompany the other measures is to evade the problem. First of all levying of an agricultural income tax is a state subject and cannot be a means to neutralize central revenue loss.
Kelkar Committee Recommendations: By Sector
AUTOMOBILES
Reduce peak excise duties from 32% to 20%
Reduce excise duty on cars and UV’s by 4% every year upto 2005-06
Reduce import duties
ALUMINIUM
Cut excise duty to 10%.
CIGARETTES
Maintain taxation on Specific excise duty basis.
Cigarettes to ne kept out of VAT purview.
CEMENT
Continue with current specific excise duty based taxation.
Reduce import duty from the current level of 25% to 10% by 2005.
FMCG
Shift to two slab excise structure, from the current varying rates:
Excise rate of 6% for all processed foods
Excise rate of 14% for all other items
Eliminate Re1/Kg tax on bulk tea
OIL & GAS
Reduce import duties:
Cut duty on polymers to 25% by 2003-04 and 20% by 2004-05 from 30% currently
Cut duty on crude to 8% by 2003-04 and 5% by 2004-05 from 10% currently
Cut duty on petroleum products to 15% by 2003-04 and 10% by 2004-05 from 16.5% currently
PHARMACEUTICALS
Import Duty of 0% for all life saving drugs
Import duty of 10% for raw materials
Excise duty of 0% for lie saving drugs
14% excise duty for other pharmaceutical product
PETROCHEMICALS
Retain the current 20% basic import duty on polyester
Reduce import duty on polymers to 25% by 2003-04 and to 20% by 2004-05 from current 30%
Cut duty on petroleum products to 15% by 2003-04 and 10% by 2004-05 from 16.5% currently
STEEL
Reduce import duties to 10% by 2004-05 from 25% for hot Rolled coils (HRC) and 30% for cold rolled coils (CRC).
The recommendations of the Kelkar Committee on direct and indirect taxes are in line with the present government’s economic policy of rewarding the rich with tax cuts while putting the burden on the middle classes and the common people by cutting their savings and the returns earned from them. Among the sops to the rich, corporate tax rate is to be reduced to 30 per cent for domestic companies and the tax on dividends withdrawn. The richest sections will need pay only a 30 per cent income tax.
With the tariff on imports to be brought down to a maximum of 10 per cent in a short span of time, apart from attacking domestic production, customs revenues would be adversely affected. Added to this there would be the revenue loss from the reduced direct taxes. Overall, the recommendations would further intensify the decline in the tax-GDP ratio which set in since the economic reforms began.
The Kelkar Committee’s recommendations are iniquitous as it seeks to equate different types of tax exemptions. Exemptions on small savings and house construction loans that encourage savings and housing investment by the middle classes is equated with the tax concessions and exemptions that benefit the rich (such as export earnings). Exemptions should be reduced or done away with only in the case of profit earners who are not being taxed even though they derive many benefits from facilities provided by the State at low or no cost. At a time when interest rates are falling, doing away with tax benefits aimed at encouraging savings will adversely affect the household savings rate and make savings difficult for the middle class.
The recommendation of an agricultural income tax to deal with the revenue loss that would accompany the other measures is to evade the problem. First of all levying of an agricultural income tax is a state subject and cannot be a means to neutralize central revenue loss.
Kelkar Committee Recommendations: By Sector
AUTOMOBILES
Reduce peak excise duties from 32% to 20%
Reduce excise duty on cars and UV’s by 4% every year upto 2005-06
Reduce import duties
ALUMINIUM
Cut excise duty to 10%.
CIGARETTES
Maintain taxation on Specific excise duty basis.
Cigarettes to ne kept out of VAT purview.
CEMENT
Continue with current specific excise duty based taxation.
Reduce import duty from the current level of 25% to 10% by 2005.
FMCG
Shift to two slab excise structure, from the current varying rates:
Excise rate of 6% for all processed foods
Excise rate of 14% for all other items
Eliminate Re1/Kg tax on bulk tea
OIL & GAS
Reduce import duties:
Cut duty on polymers to 25% by 2003-04 and 20% by 2004-05 from 30% currently
Cut duty on crude to 8% by 2003-04 and 5% by 2004-05 from 10% currently
Cut duty on petroleum products to 15% by 2003-04 and 10% by 2004-05 from 16.5% currently
PHARMACEUTICALS
Import Duty of 0% for all life saving drugs
Import duty of 10% for raw materials
Excise duty of 0% for lie saving drugs
14% excise duty for other pharmaceutical product
PETROCHEMICALS
Retain the current 20% basic import duty on polyester
Reduce import duty on polymers to 25% by 2003-04 and to 20% by 2004-05 from current 30%
Cut duty on petroleum products to 15% by 2003-04 and 10% by 2004-05 from 16.5% currently
STEEL
Reduce import duties to 10% by 2004-05 from 25% for hot Rolled coils (HRC) and 30% for cold rolled coils (CRC).