The Hindu Business Line : Greater tax compliance could mean lower taxes

HOLDING OUT HOPE: The Union Finance Minister, Mr P. Chidambaram, addressing the Economic Editors' conference in the Capital on Tuesday. — Kamal Narang

New Delhi , Nov. 7

The Finance Minister, Mr P. Chidambaram, on Tuesday kindled expectations of tax rate cuts in the forthcoming budget, stating that there was scope for further reduction (in rates) if greater tax compliance were to be achieved.

Stating that moderate and stable tax rates have brought about a remarkable attitudinal change among the tax-payers, Mr Chidambaram told the Economic Editors' Conference here that many people were willing to pay taxes and lead a life of dignity and peace.

"This attitudinal change, in my view, is the result of moderate and stable tax rates. There is scope for further moderation. However, this will depend upon greater tax compliance," Mr Chidambaram said.

Fuelling expectations of a cut in tax rates is the "considerable buoyancy" in tax collections during the current fiscal. The Finance Minister pointed out that until September 30, 2006, the growth rate of revenues under each head of tax has been ahead of the target. "The department of revenue is confident of achieving the budget estimates in respect of tax revenues," he said.

He highlighted the fact that the tax-GDP ratio of the Central Government has increased from 8.3 per cent in 1998-99 to 11.2 per cent in 2006-07 (budgeted).

Mr Chidambaram also pointed out that Fiscal Responsibility and Budget Management (FRBM) mandated fiscal consolidation was largely revenue driven, even as there has been a renewed emphasis on public expenditure outcomes.

"In my view, equal emphasis has to be placed on revenue mobilisation on the one hand and containment of expenditure on the other. So long as we are not able to eliminate wasteful expenditure, we have to adopt a cautious attitude towards tax concessions and revenue sacrifices. The magnet for new investment should be better infrastructure and not tax concessions alone," Mr Chidambaram said.