It wants just three rates of excise duties: 5 per cent, 15 per cent and 25 per cent. Currently, there are more than a dozen rates. The committee is said to have prescribed a time frame of five years to get these three rates in place. In other words, Yashwant Sinha has been told that it will not be possible to do what he wants to in the next budget. The question of an immediate improvement in tax compliance has been ducked.

A three-tier tax structure has the appeal of being simple. But the Indian economy is complex. There are goods produced with the use of electricity; and a wide variety of these eschew the use of power altogether.

The production ofcertain goods need to be deterred; cigarettes and non-biodegradable plastics, for example. As part of employment generation policy, labour intensive technology is encouraged. Tax rates are nuanced to serve a host of objectives. Goods cannot be simply described as essential, intermediate and luxury on the basis of end-use. To do so would be to junk economic and social objectives. This apart, the 5 per cent tax on essentials will replace nil tax, for example, on salt and edible oil. This makes no sense after Sinha's roll-backs on cornflakes, butter, cheese and mithai.

The three-tier formula clubs goods exempt from tax under the proposed 5 per cent net; brings goods paying 8 per cent and 13 per cent into the 15 per cent slab; and reduces high excise items, automobiles, for example, from 40 per cent to 25 per cent. There is a case for lowering the excise on automobiles to tide over the recession; but to do so in the name of rationalisation and to simultaneously suck in essential goods into the excise net willonly invite trouble.

To get more revenue, some bulk items should be identified: petrochemicals, consumer plastics, crude and products, etc. Why widen the excise foot print? It is also necessary to rationalise rates (for example, for CTV sets, now prescribed by size of screen), and shift to ad valorem (MRP) basis.

Rationalisation means simplification, not vice versa. Also a close look needs to be taken at duty rates, for example, on plastic raw materials and final plastic goods, to realise net modvat.