Chidambaram hints at a 'moderation' in tax rates

RUN UP TO THE BUDGET 2008-09

Says there is a case 'if voluntary compliance increases'

Finance Minister P Chidambaram today reaffirmed that tax rates may be moderated in Budget 2008-09 due February 29 but linked it to better compliance by taxpayers.

"Let me recall what I have said earlier. If voluntary compliance increases, there is a case for moderation. That does not mean the case has been accepted," Chidambaram told reporters here today.

He added that the revenue department will continue to focus on voluntary compliance. 
 

TAXING COMPLIANCE Direct tax collections (Rs/crore)
Year	Amount	Y-o-Y growth (%)
2003-04	1,05,088	26.48
2004-05	1,32,771	26.34
2005-06	1,65,208	24.43
2006-07	2,30,091	39.27
2007-08*	2,05,000	42.36
* As of November 30, 2007 (expected to cross Rs 3,00,000 cr for full year April 07 - March 08) * Personal income tax growth rate at 50.06% and corporation tax growth rate at 39.84% so far this fiscal. * 85 per cent of an estimated 31.9 million taxpayers filed income tax returns in 2006-07 * Out of about 13,36,000 electronic returns filed by taxpayers so far in 2007-08, over half are voluntary, an increase of 290 times over last fiscal.

"People would be better off if they paid me more taxes," Chidambaram added.

Chidambaram's comments come on the back of robust growth in tax revenues so far this year and significantly improved compliance.

Direct tax collections crossed Rs 2,05,000 crore (net of refunds), a 42.36 per cent growth rate as of November-end this fiscal, and are now the largest contributor to the exchequer, overtaking indirect tax in collections last month.

Corporation tax collections grew 39.84 per cent to Rs 1,27,683 crore. Personal income tax collections (including fringe benefits, securities transactions and banking cash transaction taxes) grew 50.06 per cent to stand at Rs 77,380 crore.

For fiscal 2007-08, total direct tax collections are expected to rise to over Rs 3,00,000 crore, 12 per cent higher than the target at the start of the year.

In terms of the direct tax-to-GDP ratio, the target of 11.8 per cent for the year will also be exceeded, Chidambaram said.

Finance ministry officials mirror what the minister said today, adding a realignment of personal income tax rates and corporation tax rates could also be considered, provided many of the exemptions that companies enjoy are curtailed or scrapped.

Over the past couple of years, the Central Board of Direct Taxes has taken several initiatives to encourage tax compliance. These include the tax return preparer scheme, electronic filing and payment and quicker refunds.

"These are all customer-friendly measures and designed to encourage and provide impetus to comply," Chidambaram added.

Terming direct taxes the "taxes of the future", the minister underlined that personal and corporation taxes "will be the major sources of tax revenues in India".

Chidambaram also announced a new Directorate of Income Tax for Human Resource Development in the Central Board of Direct Taxes. To be headed by an officer of the level of Chief Commissioner of Income Tax, the new entity is expected to transform the functioning of the department.

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FM bytes

"The Income Tax Code is ready as of yesterday. A discussion paper is being prepared and it will be put out for public discussion soon. The Code is not an amendment of the Income Tax Act; it is a new outlook to direct taxes. It is tax law reform"

"Once we switch over to Goods and Service Tax, collections will get a new momentum. There is no past record, but as VAT showed, a dramatic upturn (in collections) happened. It is my recollection that the report will be given to me by the month-end".

"There is progress on the front to add more (high value) transactions to the Annual Information Return". AIR currently covers seven high-value financial transactions

"We will have a new advisor (to the Finance Minister)". [Incumbent advisor Parthasarathi Shome is leaving the post this month-end.]