The Polit Bureau of the Communist Party of India (Marxist) has issued the following statement:
Kelkar Committee: Iniquitous Proposals
The recommendations of the Kelkar Committee on direct and indirect taxes are in line with the present government’s economic policy of rewarding the rich with tax cuts while putting the burden on the middle classes and the common people by cutting their savings and the returns earned from them. Among the sops to the rich, corporate tax rate is to be reduced to 30 per cent for domestic companies and the tax on dividends withdrawn. The richest sections will need pay only a 30 per cent income tax.
With the tariff on imports to be brought down to a maximum of 10 per cent in a short span of time, apart from attacking domestic production, customs revenues would be adversely affected. Added to this there would be the revenue loss from the reduced direct taxes. Overall, the recommendations would further intensify the decline in the tax-GDP ratio which set in since the economic reforms began.
The Kelkar Committee’s recommendations are iniquitous as it seeks to equate different types of tax exemptions. Exemptions on small savings and house construction loans that encourage savings and housing investment by the middle classes is equated with the tax concessions and exemptions that benefit the rich (such as export earnings). Exemptions should be reduced or done away with only in the case of profit earners who are not being taxed even though they derive much benefits from facilities provided by the State at low or no cost. At a time when interest rates are falling, doing away with tax benefits aimed at encouraging savings will adversely affect the household savings rate and make savings difficult for the middle class.
The recommendation of an agricultural income tax to deal with the revenue loss that would accompany the other measures is to evade the problem. First of all levying of an agricultural income tax is a state subject and cannot be a means to neutralize central revenue loss.