Economics notes for law students:Write about the Task Force on Implementation of FRBM Act

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Economics notes for law students: Write about the Task Force on Implementation of FRBM Act.

Write about the Task Force on Implementation of FRBM Act.

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Following the enactment of the FRBM Act, the government constituted a task force headed by Dr. Vijay Kelkar for drawing up the medium-term framework for fiscal policies to achieve the FRBM targets. The Task Force was also asked to formulate annual targets indicating the path of adjustment and required policy measures. It submitted its report in July 2004. The report includes several tax reform strategies and suggests many tax measures.

                        Tax reforms strategy

(1) Widening the tax base through the removal of exemptions and “grandfathering”.
(2) Few, but low rates to avoid the problems of bracket creep, classification disputes, and lobbying for lower rates.
(3) Enhancing equity of the tax system, both vertical and horizontal.
(4) Shifting to non-distortionary consumption taxes to enhance efficiency in production and international competitiveness of Indian goods and services.
(5) Enhancing the neutrality between present and future consumption; forms of organization; and sources of finance.
(6) Establishing an effective and efficient compliance system.
(7) Focus on buoyancy rather than immediate sources of tax revenues.

 

(1) An All-India goods and services tax (GST), on the basis of a ‘grand bargain’ with states, whereby states will have the concurrent powers to tax services, subject to certain principles that will help foster a national common market.
(2) Income tax exemption limit to be increased to Rs. 1,00,000.
(3) A two-tier rate structure of 20 percent tax for income of Rs. 1,00,000 to Rs 4,00,000 and 30 percent for income above Rs. 4,00,000 for individuals and elimination of standard deduction available to the salaried taxpayers.
(4) A reduction in corporate income tax to 30 percent for domestic companies and a reduction in depreciation rates from 25 percent to 15 percent. All tax incentives for existing units to be ‘grandfathered’ but to be removed for new units.
(5) A 3-tier customs duty rate of 5, 8, and 10 percent to bring down tariffs to ASEAN levels.
(6) Ad valorem rates of excise applicable to petroleum products to be converted into specific rates and the threshold exemption limit for small-scale industries to be reduced from Rs. 1.crore to Rs. 40 lakh.
(7) Allocation of a greater portion of expenditure to legitimate public goods by revisiting the classifications of expenditure.
(8) Empowering panchayats/local bodies through resource transfer.

 

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