Rationalisation of tax concession required

Written by Banking Bureau | Mumbai, Aug 30 | Updated: Aug 31 2007, 05:44am hrs
The Reserve Bank of India (RBI), in its annual report, has suggested that in order to broaden the tax base, it is imperative to rationalise/eliminate major tax concessions and bring the key segments of the services sector within the ambit of tax net, in tandem with the growing share of this sector in the gross domestic product (GDP).

The service tax constituted 8% of gross tax revenues and about 16% of indirect taxes of the central government in 2006-07. RBI, in its outlook for 2007-08, said that appropriate conditions were in place for the introduction of goods and services tax (GST) with effect from April 1, 2010. This is expected to have a positive impact on the efficiency of the indirect tax system.

The share of public expenditure on health in India in 2004 was at 0.9% of GDP, which was lower than Brazil (4.8%), China (1.8%) and least developed countries (1.8%). The governments policy of reprioritisation of expenditures towards social sectors along with higher capital outlays would promote fiscal discipline without restricting operational efficiency of the government, the report said.

The RBI says that with gross fiscal deficit budgeted at 3.3% of GDP in 2007-08, the Fiscal Responsibility and Budgetary Management (FRBM) target of 3.0% by 2008-09 appears feasible.