Transcript presentations

Budget 2007-08: Tax
Proposals
M. Govinda Rao
National Institute of Public
Finance and Policy
Introduction




Tax revenues have shown high buoyancy.
Contributed significantly to fiscal adjustment.
Slow growth of union excise duties is a cause for
worry.
Further tax reforms should attempt to integrate
the tax system (from the prevailing fragmented
system), make it simple and transparent.
The FM had set the target of evolving a
coordinated system of consumption taxes – GST
to be achieved in 2010. Initiatives in this regard
are important.
Towards Fiscal Consolidation


Fiscal targets set for 2006-07 have been
achieved. The RD target is 1.5 per cent
of GDP. In 2008-09 this should be
brought down to zero. Is that feasible?
How has the fiscal adjustment taken
place so far?
How Has the Adjustment Come About



Increase in Tax revenue over 2001-02 was 3.2 points
(from 8.2 to 11.4% of GDP).
This is distributed between reduction in non-tax revenues
(1.1points), larger central transfers to states (0.95) and
transfers to state/district level autonomous bodies (1.1
points). Centre’s own expedniture was reduced by 2.3
points to achieve the revenue deficit by the same
magnitude.
Implications




Not correct to state that fiscal adjustment is due to increase in
tax revenues.
Lager transfers to states: improvement in states’ fiscal health.
Direct transfers to autonomous bodies – do we have efficient
delivery system? Accountability?
Implications for fiscal federalism?
How Has the Adjustment Come About?
Percentage Point Changes to GDP
2006/2001
Gross Tax Revenue
3.16
Gross Total Revenue
2.07
Transfers to States (Shared
taxes + Grants)
0.95
Transfers to State/District
level autonomous bodies
1.09
Centre’s Direct Expenditure
-2.33
Interest Payments
-1.16
Revenue Deficit
-2.36
Fiscal Deficit
-2.48
Trends in Tax Revenue





High buoyancy of tax revenue, particularly direct
taxes. Warrants a re-look at the structure.
The buoyancy is not merely due to high growth of
manufacturing and service sectors.
TIN has played an important role: Lessons for union
excise duties.
Building information system and exchange can help
to have lower rate of (say 15%) of GST, when
introduced.
The tax revenue growth assumed in 2007-08 budget
(17%) seems to be an underestimate.
Trends in Tax Revenue
Tax heads
2001-02
2006-07
2007-08
Growth
Rate
Direct Taxes
3.03
5.57
5.85
26.69
Corporate Income Tax
1.60
3.56
3.68
31.38
Personal Income Tax
1.40
2.00
2.16
20.57
Other Direct Taxes
0.03
0.01
0.01
6.10
Indirect Taxes
5.17
5.79
6.14
15.05
Customs Duties
1.77
1.99
2.16
14.80
Excise Duties
3.18
2.85
2.85
10.18
Service Tax
0.14
0.93
1.10
67.19
Others
0.08
0.03
0.03
-5.20
Total-Gross Tax Revenue
8.20
11.36
11.98
19.87
Trends in Direct and Indirect Tax Revnue
14.00
10.00
Direct
8.00
Indirect
6.00
Total-Gross
4.00
2.00
Years
20
07
-08
20
06
-07
20
05
-06
20
04
-05
20
03
-04
20
02
-03
20
01
-02
0.00
20
00
-01
Per Cent of GDP
12.00
Trends in Tax Revenue
4.00
Per cent of GDP
3.50
3.00
Corporate
2.50
Personal
2.00
Customs
1.50
Excise
1.00
Service Tax
0.50
0.00
1
-0
0
0
20
2
-0
1
0
20
3
-0
2
0
20
4
-0
3
0
20
5
-0
4
0
20
Years
6
-0
5
0
20
7
-0
6
0
20
8
-0
7
0
20
Tax Reforms
Desirable features:






Selectivity in tax policy continues: Retrograde policy in
the Cement sector. Selective taxation of services sector.
Undesirable Features:







Reduction in customs;
Dividend tax: Towards a partial integration and horizontal equity;
Withdrawal of exemptions under MAT under Sections 10 A and 10 B.
Extension of the tax to ESOP.
Reforms do not advance GST reform much.
Reduction in CST too little;
Amendment of definition of small scale industry;
Selectivity in excise and customs: The special treatment of biscuits,
food mixes, umbrella, parts of footwear, plywood, water purification
devices, dog and cat food and cement.
Continued selectivity in service taxation;
Missed an opportunity to convert the central excise into a MANVAT on
goods and services.
Centre has to take leadership in GST; Need to finalise
the Roadmap.
Concluding Remarks






Difficult to achieve FRBMA target on revenue
deficits.
Revenue increase has provided a lot of cushion
for both centre and states. Low
Underestimation of revenues provides scope for
increasing expenditures during the year.
Building information system – extremely
important for evolving a low rate of GST.
Not much in tax reforms. Some attempt at
broadening the base. Selectivity continues.
No GST strategy.