The advisory group, headed by Dr Parthasarthi Shome, has submitted the interim report to the Planning Commission deputy chairman KC Pant, which was forwarded to Finance Minister Yashwant Sinha. The group, which was set up by the Planning Commission, is preparing a strategy paper on tax policy and administration for the Tenth Plan. The final report will be submitted to the commission later, said sources.

The Shome committee, sources said, had mainly suggested lowering of the tax rates and some of its recommendations on the fiscal side may find reflection on the 2001-02 Budget.

The finance ministry has introduced 10 per cent surcharge on corporate and income tax in order to raise the revenue. However, as the direct tax collections are looking up, there is a case for abolition of surcharge. The Shome committee, in fact, has joined the chambers in suggesting removal of the surcharge.

As far as tax on dividends is concerned, the finance ministry, in the last Budget, increased the rate from 10 per cent to 20 per cent. The industry has been pleading for reducing the tax on dividends to 10 per cent in the forthcoming Budget. The Shome committee, according to sources, is of the view that dividend tax be abolished altogether, if not in one shot at least in a phased manner.

The committee has favoured a steep reduction in the corporate tax rates. Currently, the effective corporate tax is around 38.5 per cent for Indian companies and 48 per cent for foreign companies. The committee, sources said, had suggested that the rates, for both the categories, be lowered to 30 per cent.

The committee also wants the finance ministry to focus on increasing revenue from service tax by significantly expanding its scope. Dr Shome, in his address at a Ficci meet on Wednesday, had said that the information technology sector should be taxed. He was of the view that services sector has the potential of yielding more than Rs 10,000 crore per annum as against Rs 3,500 crore currently.

At present, the service sector collection is 0.1 per cent of the GDP. The committee, sources said, had suggested to the government to substantially increase the collection and take it to more than 0.5 per cent of the GDP during the course of Tenth Plan.

The industry also wants the government to tax all services. Currently, services attract 5 per cent tax, but it is applicable to only select services.

During the Tenth Plan period, the committee has suggested that the tax-GDP ratio be increased from about 14 per cent at present to around 18 per cent.

This, sources added, was necessary to generate revenue for accelerating economic growth to 9 per cent during the Tenth Plan as desired by Prime Minister AB Vajpayee.