To dilute or not

Mumbai: The Kelkar Committee report on tax reforms has opened a Pandora’s box with all sections crying foul and forcing the Indian government to review the report. What is it all about?

The report has been prepared by a committee headed by Dr Vijay Kelkar, advisor to the Indian finance minister, to suggest tax reforms that will enable the economy to achieve global competitiveness under the World Trade Organisation regime.

The draft of the report, which has appeared in the print media, suggests wide-ranging changes in direct and indirect taxes. The most notable suggestion has been the withdrawal of section 88 tax exemptions. Under section 88, rebates are given for investments in infrastructure and housing. Today, the housing sector is booming basically due to tax exemptions and reduced interest rates; taking away this sop will hit the salaried class the hardest.

In the case of infrastructure, one should cite the case of Konkan Railways, a huge project that was successfully funded due to the rebate in infrastructure bond issued by the Railways. Infrastructure needs huge investments and one of the successful avenues of funding comes from bonds. Infrastructure will also be hit by the withdrawal of rebates.

Recently, the Reserve Bank of India cut its rates, which led to all banks reducing their rates on deposits. Today, the maximum interest State Bank of India offers on its deposits is 6.5 peer cent. With the withdrawal of the tax rebates infrastructure bonds, the fixed income class, as also senior citizens, will be severely affected.

Not a prudent move
The committee has also recommended withdrawal of section 10A and section 10B of the Income Tax Act.