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Rejig of indirect tax rates on cards
August, 14th 2012

A mid-year rejig of indirect tax rates is in the offing to mobilise additional revenues.

The option has been placed before the Vijay Kelkar panel that met for the first time on Saturday.

The committee will look into revenue raising measures. Given the current economic situation, the committee will also deliberate on whether the fiscal deficit target be made more realistic, including short term and medium term measures for reigning it in. Tinkering with diesel and LPG prices may be a medium term strategy while in the short term, a change in duty structures may be considered, a government source said.

Last year in June, after a fuel price hike, the government withdrew the 5 per cent customs duty on crude oil, and cut excise duty on diesel by Rs 2.6 a litre, losing tax revenue of Rs 49,000 crore. It also cut the import tax on petrol and diesel

to 2.5 per cent from 7.5 per cent.

One of the options could be restoring the duties even though it may lead to a spike in inflation, the sources said.

The three member is likely to submit its report by the end of the month. Other than Vijay Kelkar, the chairman of the Thirteenth Finance Commission who played a key role in the formulation of the FRBM Act, the others are Indira Rajaraman, emeritus professor NIPFP and Sanjiv Mishra, former expenditure secretary. The roadmap for fiscal consolidation is expected to help the government score with the investors and so lift sentiments about the economy.

Earlier, while announcing the formation of the panel, Chidambaram had said, We intend to unveil, shortly, a path of fiscal consolidation... Adjustments must be made both on the revenue and the expenditure side. We have asked (the panel) to assist the government in formulating the path

and we expect that the work will be completed in a few weeks

The sources said that the panel will also factor in the current drought situation in the country and suggest ways to deal with it in its report on consolidation. In fact, the report may also, looking at the current economic situation, consider making the fiscal deficit target more realistic, the sources said.

The Indian Meteorological department has already said that it expects at least 10 per cent less rain this year.

The appointment of Kelkar came soon after Parthasarathi Shome, director ICRIER was given an extended mandate to look into the issues involving controversial tax amendments including general anti-avoidance rules (GAAR) and retrospective amendments in the Budget 2012-13. Although implementation of GAAR has been deferred by a year, these amendments have been squarely blamed for the dip in investor sentiments and slump in investment plans.

a government panel works on the fiscal health of the economy, the Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) have been asked to work on an action plan to improve revenue collection and financial health of the country

The CBEC has prepared a blue print to remove the impediments from core infrastructure sectors, I-T, mining, coal sector and transport

The Boards are also reviewing exemptions provided to sectors and see if they need to be trimmed or extended

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