Kelkar Report Will Further Tax Reforms

Bangalore, May 22: | Updated: May 23 2003, 05:30am hrs
Union finance ministers advisor Vijay Kelkar has received unstinted support for his recent reports on direct and indirect taxes from the unsual quarters of the World Bank which has asserted that tax administration was a key challenge as far as India is concerned.

WBs senior vice president and chief economist Nicholas Stern on Thursday applauded Mr Kelkar for his reports and said that these reports emphasized on further improving the tax collection in a serious bid to carry out tax reforms in India. The Kelkar committee report has made a lot of constructive suggestions in this regard. India will undoubtedly require tax reform to broaden the tax base in terms of coverage, exemption and improved administration. Bringing services and agriculture into the tax net should be part of the story. Mr Stern during his interaction with a group of select journalists at the sidelines of WBs ABCDE conference emphasized the need for increasing tax collection and bringing services wich constitute 50 per cent of GDP into tax net.

Mr Sterns admiration of Mr Kelkar and his reports deserve special importance especially when the Centre had to simply turn a nelsons eye on various recommendations under the garb of compulsions of coalition politics. On the Centres decision to defer the launch of Value Added Tax (VAT) regime from June 1, Mr Stern said that he had not followed the discussions in this regard which took place in India. However, he gave examples of the effective implementation of VAT in European Union countries and added that introduction of VAT in India could lead to greater tax compliance. The VAT would also bring the services in the tax net.

Mr Stern was quite worried over the current state of affairs in the Indian power sector. Power sector situation is quite serious. There is an urgent need for giving impetus on increasing revenues, collection and metering, he said. On comparitive analysis between India and China, Mr Stern asserted that there has been a strong and sustainable growth in China. The growth is visible and it is taking place mainly on the eastern coast. China is quite aware of the rapid growth area. The inflation rate is zero in China, he said. Mr Stern lauded the Chinese authorities efforts to tackle the SARS episode. He hoped that it would be a short term hiccup rather than a long term one. However, in India the manufacturing sector relative to GDP was less than half the size of China and most South East Asian countries. Indias penetration of world markets in industrial products stagnated during 1990s. According to WBs recent studies of the investment climate show that starting a business in India requires 10 permits compared with six in China and needs an average of 90 days in India compared with 30 in China. All these factors serve as a tax on entrepreneurship, impending innovation and raising the cost of bringing ideas to the market. However, Mr Stern admitted that the experience of India and China provide testimony to the role of trade in stimulating growth and poverty reduction notwithstanding the barriers often erected by rich countries. He called upon India to aggressively push through trade reform which was a key part of improving the investment climate and taking advantage of growth opportunities.