The Hindu Business Line : States to decide on Kelkar tax package in a month

STATE Governments are likely to firm up over the next month their views on the acceptability of the tax reform package proposed by the Task Force on Implementation of the Fiscal Responsibility and Budget Management Act (FRBM).

"The report of the taskforce is on the table of the Empowered Committee of State Finance Ministers on VAT for further discussion. They have to decide what can be accepted and fitted into their scheme of things. We have been told that the States would do so over the next one month," Dr Vijay Kelkar, Chairman of the Task Force on Implementation of FRBM, said here on Tuesday.

Addressing a seminar, organised by the National Institute of Public Finance and Policy (NIPFP) here to discuss the taskforce's report, Dr Kelkar maintained that the tax reforms measures of the report would enhance the fiscal space of the States — a point not entirely accepted by many tax experts and economists.

He hoped that the States would accept the "grand bargain" proposal by April 1, 2005. Dr Kelkar also defended the taskforce's strategy for achieving fiscal consolidation through higher tax revenues rather than compression in expenditure. "It is in the long-term interest of the economy that the grand bargain is accepted and dual GST (general sales tax) is introduced. If the Indian economy is to integrate with global economies, there is no option but to adopt this desirable development," he said.

As part of a "grand bargain" proposal, the Kelkar taskforce, in July 2004, mooted a dual-goods and services tax (GST): Central GST and State GST. Under this, the States will have the power to tax all services concurrently with the Centre. Even as Dr Kelkar held that the proposal should be acceptable to the States, tax experts and economists participating in the seminar raised the issue of its "constitutional validity." Some of them pointed out that the Constitution would need to be amended if States are to be given the powers to levy tax on services.

In his remarks, Dr M. Govinda Rao, Director, NIPFP, held that a comprehensive GST regime is "much desirable" even as he highlighted that this was not a solution that could be achieved in a short time. He strongly indicated that the "grand bargain" proposal is unlikely to be accepted by the states by next April. He pointed out that the States are only looking to implement from April 1, 2005, a limited intra-State VAT that would co-exist with a reduced 2 per cent central sales tax.

Dr Indira Rajaraman, RBI Chair Professor at NIPFP, said the tax reforms package of the Kelkar report presents the policy makers with no choice. "It gives a single reform package to get to the FRBM targets. The report should have suggested a cafeteria of policy options for political leaders to choose from," she said.

More Stories on : States | Taxation | Economy

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
SC panel for closure of Hind Insecticides unit — Proposes Rs 2.5-cr fine for polluting river

Will farm loan delivery match the decibel level?

Airtel pre-paid tariffs slashed by 60 pc

PM to head infrastructure panel — Promises simpler tax compliance regime

`Bombay Plan still relevant'

States to decide on Kelkar tax package in a month

Govt offers tax shift from booking agencies to consignors

Smart planning leads to drop in car inventory levels

TCS shares listing today

Gestetner, Ricoh merger at 1:6 share swap ratio

Strike cripples banking operations

Cement, steel stocks prop up indices