Chelliah Committee Recommendations on Indian Fiscal Policy! The committee, set up in August , submitted its Interim Report in February , and final. Tax Reforms Chelliah Committee Report — I Guiding Principles of Tax Reform he guiding principles underlying the tax reforms proposed by the Committee. Raja Jesudoss Chelliah (12 December – 7 April ) was an economist and founding He served as chairman of Tax Reforms Committee of Union Government between and and as chairman of the Tax Reforms and.
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Taxation is an important source of revenue for any country. It helps in securing social justice, reducing inequalities in income and wealth, mobilizing savings and discouraging undesirable investment. The Objective behind reform is orienting the tax structure towards an open and competitive economy by improving its efficiencies and tax revenues on a sustainable basis.
The study is Descriptive in Nature and Data collected from secondary sources. In developing economy like India, tax occupies coommittee strategically important position in the overall development of the country due to its significant contribution to the national exchequer, which is ultimately spent on the overall development committed different sectors of the economy.
There have been the major changes in tax systems of countries with a wide variety of economic systems and comittee of development during the last two decades.
Chelliah Committee Recommendations on Indian Fiscal Policy
The motivation for these reforms has varied from one country to another and the thrust of reforms has differed from time to time depending on the development strategy and philosophy of the times. In many developing countries, the immediate reason for tax reforms has been the need to enhance revenues to meet impending fiscal crises. Such reforms, however, are often ad hoc and are done to meet immediate exigencies of revenue.
In most cases, such reforms are not in the nature of systemic improvements to enhance the long run productivity of the tax system.
During the last two decades, there has been severe deterioration in the fiscal health at the states level although the decline in the fiscal position of the state has been mainly due to uncontrolled expenditure growth an important factor has also been the marked decline in the tax productivity.
Indian states derive approximately 65 percent of revenue from own sources, the remaining 35 percent being the transfers from the centre. Over the years central transfers to states as ratio to GDP stagnated and consequently, in view of the growing expenditure needs the dependency on own revenue increased.
However, the growth of own tax revenue of almost all the states has been on the decline which has aggravated the pressure on the fiscal balance in course of time. It became responsible for the decline in the quality of expenditure. There is also a need to adjust the taxation to suit the needs of growing market orientation to the economy which calls for reducing the tax differentials across the states, broadening the tax base with minimal exemption and incentives and bringing about the much needed transparency for better tax compliance.
One of the most important reasons for recent tax reforms in many developing and transitional economies has been to evolve a tax system to meet the requirements of international competition Rao The transition from a predominantly centrally planned development strategy to market based resources allocation has changed the perspective of the role of the state in development.
The transition from a public sector based, heavy industry dominated, import International Journal of Research in Social Sciences http: In an export-led open economy, the tax system should not only raise the necessary revenues to provide the social and physical infrastructure but also minimize distortions.
Thus, the tax system has to adjust to the requirements of a market economy international competitiveness. As in other countries, the systemic reforms in the tax system in India in the s were the product of crisis but the reforms were calibrated on the basis of detailed analysis. Indian taxation system has always been under criticism because of number of defects in the present tax system e. In this tune the government of India appointed various committees from time to time for making recommendations to improve the existing tax system.
Direct Tax Administration i Return of income accruing from business and profession Enquiry Committee Mahavir should be allowed to be submitted after four months of closing Tyagi Committee date of accounting year, and for others up to 30th June, ii The prescribed forms of return of assessment, should be sent by post to the accesses from the income tax department.
Chokshi Committee Gift Tax Continuation. Reduction in duty rates, Improvement of Tax Collection Procedure, Increasing the Elasticity of the tax revenues, Identifying new areas of taxation to increase Productivity. Rationalization of the Existing Direct Tax system, Clubbing of Income of minor child with that of the parent. Public Finance Fiscal Policy S. The basic approach has been to move to tax structure which is simple, relies on moderate tax rates with a wider base and better enforcement and serves the objectives of equity and administrative efficiency.
Now almost every conceivable direct and indirect tax is levied in this country.
Chelliah Committee Recommendations on Indian Fiscal Policy
In terms of the ratios of tax proceeds to national income, India is one of the highly taxes countries. And if today the government feels that its resources are inadequate and it has no alternative but to have resource to public debt and deficit financing, it is mainly due to its colossal unproductive expenditure and complete indifference to the canon of economy. This is the result of the changing perception of the role of the state. There is emphasis upon minimizing distortions in tax policy, which implies reduction in the marginal rates of taxation with a view to keeping the economy competitive.
Gupta and Dinesh discussed about direct taxation, indirect taxation and various tax reforms committees. They suggested for increasing the tax collections to meet the growing demands of government expenditure by reducing concession and exemptions, tapping the rural rich, need of rationalization disclosure scheme with stiff penalties.
Sharma and Shyam critically analyzed background of the post- tax reforms measures, observed that changes in respect of exemption limit and the rate structure have served the objective of ushering in an era of moderate tax rates with the hope that this will contribute to an improvement in tax compliance.
They suggested that tax reforms combining lower statutory rates with base broadening would help to achieve pro growth fiscal adjustment in India. Average effective tax rates and tax productivity estimates suggest ample scope for raising direct tax revenue through the removal of exemptions, improved tax administration and compliance. His description of the views of Kaldor and Bauer is worth quoting. Tax more said Kaldor: Tax less said Bauer.
Increase public spending to encourage development said Kaldor: Tax the rich especially heavily said Kaldor: Rao opined that the Indian tax system was characterized by a high dependence on indirect taxes, low average effective tax rates, high marginal effective tax rates and large tax induced distortions on investment and financing decisions and therefore reforms should be aimed at improving fiscal consolidations, lowering the marginal tax burden and reducing tax induced distortions.
Sharma In this article author discussed the systemic reforms in the tax system in India, Paradigms of Tax Reforms. In this they have recommended rationalization, simplification, Improving of Productivity, efficient and transparent tax system.
Objectives of the Study 1. Scope of the Study The Scope of the study is looking into the following aspects to find ways for taking further steps towards Reforms in Indian Tax System.
To give suitable Measures to take further steps towards Reforming to overcome the Loopholes in the Tax System. Significance of the Study The Significance of the study is looking into the following aspects to find ways for talking further steps towards reform in Indian Taxation, find measures to expand tax payers base and increase tax compliance reeport overall commottee of tax reforms, determine ways to improve tax collection, boost Tax- GDP ratio: Improve Tax Administration, Ensure flexibility and stability, broadening the tax base and Equity higher revenue realization should be possible with better compliance.
Due to resource and time constraint, only Chelliah Committee Report and period from to ,its impact on Tax Revenue and Tax-GDP ratio has been selected for detailed study.
However, maximum repkrt has been taken to ensure the reliability of the information gathered through Secondary data. Research Methodology The present study Descriptive in Nature, data extracted fromsecondary Sources viz.
Since Independence, a number of committees were constituted by the Government of India for suggesting reforms in the Indian Tax System.
The Government of India constituted a committee in August a high level committee under the Chairmanship of Dr. Raja Chelliah in order to examine and recommend.
Indian Tax Reforms Committee (Recommendations)
The committee made several important recommendation covering both direct and indirect taxes including tax administration. The recommendations are follows: Finding ways and means for Increasing the Elasticity of the tax revenues in both direct and indirect taxes. Restructuring the Tax System as broad based and fairer particularly with regard to personal taxation. Rationalization of the Existing Direct Tax system for removing anomalies, improving equity and sustaining economic incentives.
Identifying new areas of taxation to increase Productivity. Raising of Income tax Exemption limits. Reduction in the number of income tax rate slabs.
Lowering the Tax Rates. Clubbing of Income of minor child with that of the parent 9. Finding reort and means of improving compliance of direct taxes and strengthening their enforcement.
Introduction of the presumptive tax on small retail traders with annual committwe not exceeding Rs. Limiting the perquisite value of rent free or concessional rent residential accommodation provided by employer to employees whose annual salary exceeds Rs. Inflation adjustments for capital gains for tax purpose. Implementation of estimated income schemes with respect to those assesses whose total annual business turnover is more than Rs.
Corporation profit tax including taxation of foreign entities, the issue relating to business taxation, interest tax, agricultural income taxation, gift tax and tax on charitable organizations.
Further reforms of the system of Domestic Indirect chellih particularly at the central level. Improvement in tax administration procedures, removal of harsh and complicated provisions and appellate procedures.
Major problems relating to tax administration. Improvement of Tax Collection Procedure Constitution of a settlement Commission for quick and final settlement of complicated cases. Efforts should be made for a Stable Tax Regime. Targets for tax collection should be fixed on some realistic basis. The assessing officers should be made accountable for their actions so as to remove harassment caused to the assesses. The Committee recommended the lowering of the corporate tax for all domestic companies from The multiplicity of rates of excise duty should be reduced to two or three rates at 10, 15 or 20 per cent.
A High rate of 30, 40 or 50 per cent could be levied on non- essential commodities or commodities injurious to health. The Tax base should be enlarged by including services within the tax net.
The Present excise tax system should be gradually transformed into VAT at the manufacturing level. The law and procedure relating to chel,iah should be simplified and specific duties should be replaced by ad valorem duties in respect of most goods.
The Committee recommended the abolition of interest tax as it acts as a wedge between the reward to re;ort savers and return on investments. The Committee recommended the continuance of the levy of gift tax, since it discourages transfer of assets for reducing the total tax liability of a family.
The exemption limit may be raised to Rs. Chaudharishreeniwas publications Jaipur Secondly it aimed at widening the tax base. Thirdly large number of exemptions was to be removed.
Fourthly lowering the tax rateswas aimed at. In recent years, various budgets have implemented most of these recommendations in modified form. Steps Taken by the Central Government for Implementation.