ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Task Force Report on Indirect Taxes: A Critique

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.

Calcutta Diary

Substitution of sales taxation by value added tax, it is being claimed, will reduce distortions in the economy caused by multiple rates of taxation of inputs and help the establishment of an integrated national market. What a pipe-dream. A seemingly fractured market which nonetheless promotes faster and more balanced development is to be preferred any day to an arrangement where the national market is technically integrated and yet overwhelmingly unfriendly to growth. Who will tell that though to the docile chief ministers and state finance ministers who have volunteered to sign their own death warrants?

Taxing Services: Issues and Strategy

This paper attempts to analyse the issues involved in extending consumption taxes to the services sector. Although the share of services in GDP is over 50 per cent, its contribution to tax revenue is not commensurate. Further, the prevailing taxes on services are overlapping and haphazard and are not conducive to the evolution of a coordinated value added tax at central and state levels. Besides, it is important to extend the tax also for reasons of revenue. The paper argues that for evolving a rational consumption tax system it is important to levy a general tax on services rather than continuing with the selective taxation prevailing at present. However, there should be a small but well defined exemption list and a negative list to avoid taxing services arising from the sovereign functions of the state and services of a meritorious nature. There should also be a threshold to exclude small service providers. At the central level it is also suggested that by 2004-05 service tax should be merged with the MODVAT to evolve a manufacturing stage value added tax. In the case of states, it is argued that to evolve a destination based retail stage value added tax, it is necessary to give concurrent powers to tax all services subject to certain safeguards to ensure orderly development of the consumption tax system.


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