Emphasising the need for raising the tax to GDP ratio to the 2007-08 period of 11.9% for a sustainable fiscal consolidation, the panel recommended market rate of interest for defaulters, levying of service tax on non-profit organisations and infrastructure projects, limiting the concessional 6% excise duty purely to merit goods, quick refund of taxes and passage of the GST Bill in the Winter session of Parliament.
The committee, which suggested further pruning of the list of service tax exempted businesses, said the rate could be progressively reduced from 12% now to 8% to facilitate the introduction of goods and services tax. It also advised finance minister P Chidambaram to make the Permanent Account Number or the unique identification number compulsory for all financial transactions however small the amount may be and irrespective of whether the person is liable to tax or not. make This includes making fixed deposits,dealings in immovable property and salary payment.
Amend the provisions of all tax laws to charge interest at rates, which reflects the market rate of interest to the defaulters and a penalty for such default, the panel said in its report which has been made public on Friday. This could be as high as 22-24% considering the fact that the market rate of interest for defaulting companies is generally as high as 18-20%, the committee noted.
Kelkar suggested the list of items that now attract 6% excise duty or below should be comprehensively reviewed to restrict the concessional rates to merit goods. Excise duty on all other goods should be increased to the standard rate. Besides, the negative list of businesses that are outside the 12% service tax should be further pruned. The panel found that if service tax is not levied on infrastructure projects, the tax element gets embedded in the cost of the project. Therefore, as a general rule the supplier of goods and services should have the option to opt into the system so that developers could claim input tax credit.
The panel said that if such an intervention is not made in taxation, the share of tax revenue to the overall economy estimated at 10.6% in the budget this fiscal would dip to 10.1% due to shortfalls in collection. If the suggested steps are taken, the decline in the ratio could be arrested at 10.3% this fiscal, which may improve to 11.1% next fiscal.
The panel that suggested modernisation of tax administration and use of high end infrastructure for data mining and cross verification of information made a strong case for creating a 360 degree profile of all taxpaying individuals and institutions to prevent tax evasion and fraud. Scrutiny and investigation have to be real time not in the outdated way these are done now.
The panel suggested a series of steps to prevent tax evasion. It said a Directorate of Risk Management should be set up to make tax administration more efficient.