Chidambaram favours moderation in tax rates

New Delhi, Nov 7: With the clock ticking for the presentation of Budget 2007-08, Finance Minister P Chidambaram today favoured further moderation in tax rates and disapproved of tax concessions.

''There is scope for further moderation, however, this will depend upon greater tax compliance. The test is the secular rise in the tax to GDP ratio'', Mr Chidambaram said in his address to the annual Economic Editors Conference.

The address was followed by the customary Question- Answer session, with many queries from the large number of Press persons from the states who are participating in the Conference.

''So long as we are not able to eliminate wasteful expenditure, we have to adopt a cautious attitude towards tax concessions and revenue sacrifices'', he said.

Mr Chidambaram said while sectoral policies aimed at giving a thrust to the sector concerned were necessary and desirable, such policies should rely more on better infrastructure, new technology and removing any structural constraints.

''The magnate for new investment should be better infrastructure and not tax concessions alone'', he said.

Mr Chidambaram said the attitude of assessees towards taxes has undergone a ''remarkable change.'' Both Corporates and individuals have imbibed the principle that ''honesty is the best policy''.

''There are still many who evade-or avoid--taxes, but a large proportion is willing to pay the taxes that are due and lead to a life of dignity and peace'', he said.

Mr Chidambaram said the attitudnal change was the result of moderation and stable tax rates.

The Finance Minister painted a picture of an economy which was glowing--sustained high GDP rates, low rate of inflation, bengin interest rates, stable exchange rate, robust growth of exports, structural shifts in the economy, resurgence in industrial growth rate and buoyancy in the growth rate of manufacturing as well as fiscal prudence.

Mr Chidambaram stressed the need for deepening the reform process, both as regards governance and institutional structures. He said only furthering of reforms can ensure a per annum sustained growth rate of eight per cent plus. Talking about infrastructure, Mr Chidambaram said an investment of 320 billion dollars was required during the Eleventh Plan period.

"The need is to deepen the debt market in India so that risks were diversified and more capital was mopped up from the market", he said.

The Finance Minister felt that there was no case for hiking interest rates at present and said there needs to be better balancing of the Bank portfolios as credit was growing at 30 per cent, while deposits at 20 per cent. The Banks need to go for deposit mobilisation in a bigger way to avoid liquidity shortage, he said.

Mr Chidambaram said Tamil Nadu would be on board regarding the implementation of VAT by January 1, 2007, but was not hopeful that the Mulayam Singh government in Uttar Pradesh would follow suit in view of the impending elections in the State.

The Finance Minister said his Ministry was discussing with the Empowered Committee on VAT, headed by West Bengal Finance Minister Asim Dasgupta, the distribution of service tax proceeds between the Centre and States. But the proposals were being thrashed out, he said and added that the Centre was willing to part with the revenues from certain services.

Mr Chidambaram regretted the suicides by farmers in various parts of the country despite a high growth rate and said a key reason for this is the indebtedness of the farmers. The approach of the government was to expand institutional credit to free the farming community from the clutches of money lenders.

The Finance Minister said two legislations were of critical importance relating to financial services and were pending before Parliament, after being cleared by the Standing Committee of Parliament.

These are the Banking Regulation Act and the Pension Fund Development Regulatory Authority Bill. The later would go a long way in providing a social security to the entire nation and not just the government employees.

Mr Chidambaram said a growth rate of 8 to 10 per cent was required on a sustained basis for the next two decades with policies aimed at fine balancing of "growth with equity."

UNI