The Kelkar Committee

The approach of the Kelkar Task Forces on direct and indirect taxes suffers from certain basic deficiencies for which the consultation papers put out by them have come under flak from large sections of the taxpaying public. The deficiencies are twofold: (1) lack of a strategy to secure majority support, and (2) absence of a sound conceptual framework. In a way the two are interrelated; failure to visualise a strategy stems partly from the weaknesses of the conceptual foundations of the proposed reforms. This essay seeks to explore the sources and nature of these deficiencies. Since the proposals relating to direct taxes have attracted most attention, the discussion here is confined mainly to the direct taxes paper, especially the structural reform proposals, though some observations are made on the proposals for reform of indirect taxes and the administrative system as well.

The Kelkar Task Force on direct taxes has gone much farther than its predecessors in respect of tax administration. However not all its recommendations on structural changes are "congruent with generally accepted principles of taxation", though it was the KTF's objective to make them so. In respect of both personal income tax and corporate profits tax there are recommendations that are not really in accord with international practices based on accepted tax theory.

The Consultation Paper on Direct Taxes makes a strong and cogent case for the autonomy of tax administration, for transforming it into a taxpayer service department and for the abolition of fiscal incentives. A critical review.

While the consultation paper released by the Task Force on indirect taxes headed by Vijay Kelkar has some very important suggestions which are easy to agree with, there is scope for serious difference of opinion in respect of many of its recommendations. And some of its proposals are not enough to achieve the objectives for which they have been put forward.