The Hindu Business Line : Signals were clear on Kelkar

RIGHT from the beginning, it was amply clear that the Government would fall short of implementing the recommendations of the Kelkar Committee report on direct and indirect taxes.

At least, not in the Budget for the new fiscal, especially when elections are round the corner. After all, which political party would like to implement measures, which make perfect economic sense, perhaps, but not return to continue with the reform process, having ruffled too many feathers?

But there were still nagging doubts, whether it will be or not be. And for those, it was no less than the Prime Minister, Mr Atal Bihari Vajpayee, himself who made it categorically clear that the "harsh measures" — doing away with the tax exemption schemes and the like — would not be implemented.

During his visit to Shimla recently, Mr Vajpayee, while referring to the Kelkar Committee recommendations had said: "The Government was not bound to accept the entire report. It will implement only such recommendations, which it considered worth implementing."

The Prime Minister went on to add that the document was a report of a bureaucrat and an economist and the Government was under no obligation to implement it in toto.

Taking the cue from there, Mr Jaswant Singh today was far more euphemistic in his negation of the recommendations, which apparently would have hurt the people the most, from the political perspective.

Referring to the committee report, Mr Singh said "By opening up the budget-making process, the Kelkar Committee Reports have more than fulfilled my basic purpose of involving, as far as practical, our citizens, in the annual budgetary exercise. ... I take this opportunity to express my sincere gratitude to the two Chairmen... "

And then went on to add: "The basic philosophy of these reports is sound. For a modern, forward-looking and in the long run, revenue-beneficial taxation system, the proposals that have been mooted may be the most appropriate. There is need to, eventually, move away from an exemption and discretion-based system to a different more current order. That is the ideal that the task forces, particularly in respect of direct taxes have suggested; a radically new approach to taxation."

Having said that, the Minister, during the course of his speech, announced that while the tax exemption schemes continue to stay, at least for the new fiscal, the standard deductions for individual taxpayers also stand increased for incomes up to and above Rs 5 lakh. Excise duties, though, have been rationalised to three slabs of eight, 16 and 24 per cent.

Thus, having refrained from implementing the recommendations on direct taxes for the new fiscal, the Finance Minister goes on to explain why he could not do so.

"This ideal is difficult to achieve in one leap, and I can scarcely cross the existing conceptual chasm in two. We cannot ignore the commitments made, or wish them away. That is why I chose to bridge the divide. We will, therefore, stay with the present system of taxation, but we will, indeed have already accepted, most of the suggestions made by the Task forces designed to eliminate procedural complexities, reduce paper work, simplify tax administration and to enhance efficiency, also integrate such tax as the system can, at present, absorb, with one overriding thought."

In effect, what is being implemented is the Kelkar Committee recommendations on streamlining tax administration, without affecting the people at large.

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