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Ministry sees scope for higher direct taxes share in overall tax kitty
August, 21st 2008

The Finance Ministry sees scope for increasing the share of direct taxes in the overall tax kitty of the country, noting that the current level of 35 per cent stood much lower when compared with the 55-60 per cent level in many other countries.

Asserting that this stance was by no means a signal for higher direct tax rates, the Revenue Secretary, Mr P.V. Bhide, told a FICCI tax conference here that direct taxes could prove to be the only available source of additional resource mobilisation for the Central Government in the coming days.

He said that Government would in future have no other option but to start working on elimination of income tax incentives and exemptions that had outlived their utility besides bringing in non-invasive deterrence measures.

Option of additional revenue mobilisation through indirect tax is no longer available. Excise duty rates are minimalistic. As we get into GST negotiations, there is little we can do to move into higher rates. There are also international obligations on the imports (customs duty) side. So the additional resource mobilisation has to come from direct taxes, Mr Bhide said.

Stating that fiscal deficit control has become an economic necessity and legal obligation, Mr Bhide said reducing fiscal deficit had become all the more important in the wake of current spiral in inflation. Earlier, the reduction in fiscal deficit was needed to prevent crowding out of investment, but now this has become imperative due to present inflation situation, he noted.

Currently, the countrys tax-GDP ratio stood at 17.5 per cent, with the same measure at the central taxes level at 12.5 per cent. Mr Bhide said that direct taxes-GDP ratio stood at 6.5 per cent.

Tax experts attending the conference felt that eyeing direct taxes for more revenues could be laudable effort, but noted that there was no justification in continuing with existing high tax rates to sustain the collections growth trend.

One should not lose sight of global tax competitiveness in the present scenario where emerging economies are vying to get their share of FDI. Therefore it is widening of tax base that is important to sustain momentum in collections rather than making a case for continuing with existing higher tax rates, Mr Aseem Chawla, Partner, Amarchand & Mangaldas, told Business Line.


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