Economic Survey - Waiving big money goodbye

Exemptions in income-tax, corporation tax, excise and customs and others incentives would cost the exchequer a whopping Rs 1,00,147 crore in the current financial year, the Economic Survey has estimated.

This is a pointer that Budget 2007-08 may continue with the rationalisation of tax incentives and exemptions, especially on the indirect tax side.

The Survey has highlighted that tax expenditures — exemptions and incentives — distort resource allocation and stunt productivity.

In Budget 2006-07, based on a comprehensive review of the tax exemptions, the Government had withdrawn eight such exemptions in customs duties, 68 in central excise duties and six in service taxes.

On the direct tax side, tax benefits available to certain cooperative banks and for income from investment in infrastructure and certain other eligible businesses were withdrawn.

With revenues remaining buoyant and the economy on a strong growth path, observers reckon that the time may be ripe for the Finance Minister, Mr P. Chidambaram, to take certain "bold steps" on the tax exemptions front.

The Economic Survey has projected gross tax-GDP ratio in 2006-07 (BE) at 10.8 per cent (after the recent upward revision in GDP) as against 10.3 per cent in 2005-06 (prov).

The direct tax-GDP ratio, which was only 1.9 per cent in 1990-91, is expected to improve to 5.1 per cent in 2006-07.