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THE KELKAR COMMITTEE on tax reform has, in its final report, quite expectedly stuck to the broad thrust of recommendations made by it in its consultation paper. Thus, it has reiterated its original view that the plethora of incentives and concessions incorporated in the codes for direct and indirect taxes have to go in the interest of a rational tax regime even as it has argued for an overall reduction in the tax rates. Also, it has re-emphasised its earlier view that this must be accomplished in one swift stroke. This is as it should be. After all, if the initial set of proposals represent deep deliberations and adherence to sound principles of tax policy, then they remain so despite vociferous protests from sections affected by specific proposals of taxation. So, the final report cannot by the very nature of things be materially different from the draft.

All the same, a distinct trend is visible in the final recommendations as between what the Committee had to say on direct taxes and indirect taxes respectively. While it has largely stood firm on the scope of its recommendations on direct taxes such as on the need to eliminate tax incentives for savings or interest deduction on housing loans, it has shown a willingness to modify its proposals on indirect taxes, as witness its acceptance of a three-tier excise duty structure or the modified proposals on taxation of petroleum products or textiles. The heat and dust generated over the proposals on direct taxes has perhaps prompted the Committee to dig in its heels in contrast to the somewhat low-key lobbying that must have doubtless preceded the modifications to proposals on indirect taxation. Or, perhaps, it was in the nature of the subject itself. It is after all, difficult to be dogmatic about whether the Cenvat rate should be 16 per cent or 14 per cent as is now accepted by the Committee. In contrast, a debate can be sustained on whether savings should be eligible for some concessions in income-tax assessment.something can be sustained till kingdom come).

The ball is, of course, now squarely in the court of the Finance Minister, Mr Jaswant Singh. The Budget, due to be presented by him in two months, is thus vested with more than ordinary significance. The tax paying public and the industry would be watching keenly how far he goes along with the Kelkar recommendations. An expert committee has the luxury of looking at aspects of tax policy from the lofty perch of fiscal principles alone. But not the Finance Minister of an elected government. He has to balance the conflicting interests of different sections simultaneously keeping in mind the larger goal of a rational tax regime for the country. Some of the proposals, such as the call for a greater alignment of tax profits with book profits or pruning the interest concessions on housing loans of individuals or the taxing of farm incomes, are bound to be resisted fiercely. With 10 States going to the polls over the next 12 months, it would be a brave Finance Minister who would be indifferent to the concerns of an influential section of the voting public or that of vested interests in industry that bankroll the political process.

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