With industry and tax payer-friendly initiatives taken by Finance Minister P Chidambaram this year, the government succeeded in achieving unprecedented growth in tax collections.
Consequently, the tax reforms have gained momentum and a roadmap is ready for implementing goods and service tax from April 1, 2010.
Fulfilling his budget commitments, the Finance Minister succeeded not only in containing inflation and fiscal deficit but has also provided ample funds for social projects.
The government is expected to meet the fiscal deficit target of bringing it down to 3.3 per cent this fiscal and to 3 per cent next fiscal.
Indirect tax collections during April-September 2007, inclusive of service tax, grew 14.6 per cent to Rs 1,25,025 crore (Rs 1250.25 billion), compared to Rs 1,09,104 crore (Rs 1091.04 billion) in the corresponding period previous fiscal. It was despite cut in customs and excise duties of almost all the products.
While providing a marginal relief to the income-tax payers, Chidambaram raised the educational cess from 2 to 3 per cent and brought employees' stock options under fringe benefit tax net.
During the current year, Chidambaram, however, failed to push the restructuring of food and fertiliser subsidies and provide any major relief to the tax payers.
Hopefully, while presenting the budget in February next year, he would announce measures to provide relief to the tax payers, while providing more funds for priority areas like infrastructure, education and health to sustain the growth momentum.
This year, many initiatives taken by the I-T department such as refund bankers scheme, setting up of income tax ombudsmen in major cities and use of information collected through Annual Information Reports on different transactions to track tax evaders also helped in raising the revenue collections.
The government's decision to make it mandatory for the corporate sector to file returns electronically and widening of the tax deduction at source (TDS) were also major decisions taken by the ministry.
After successfully implementing the Value added Tax (VAT) in all the states (even UP has agreed to implement it), government is working on implementing a comprehensive goods and services tax (GST) at Centre and states by 2010.
Chidambaram is apparently in a comfortable position considering that the direct tax collections have so far grown by over 40 per cent and the Finance Ministry is confident that it would surpass Rs 3,00,000 crore (Rs 3000 billion), and would be higher for the first time than indirect tax collections.
In the coming year, apart from bringing new income tax code to simplify the Income Tax Act and restructure the present slabs, Finance Ministry is expected to complete the computerisation of tax departments to plug leakages in the revenue collections besides checking the harassment of taxpayers.
The I-T department also tried to open a new revenue stream by serving notice to Vodafone for depositing over $1 billion as TDS for buying stake in Hutchison-Essar telecom.