PREFACE

On 25th October, 2002, as mandated, the Task Force presented the Consultation Paper to the Government with a request that the same may be made available to the public at large for a discussion on the proposals contained therein. The response has been overwhelming. An intense public debate was generated and Trade and Industry Associations, professionals and individuals from all walks of life contributed by sending hundreds of e-mails and letters and participating in discussions in the media. On its part, the Task Force interacted with a large number of Trade and Industry Associations and individuals at Pune, Ludhiana, Chennai, Bangalore, Mumbai and Delhi. Needless to state the process reinforced the view that the stakeholders in the fiscal policy are keen to be a part of the decision making process and there has been universal appreciation of the Finance Minister for bringing transparency in the formulation of tax policies. The Task Force has been mandated to make suggestions to bring our indirect tax system at par with the best international practices. An important element of the terms of reference related to taking advantage of information technology and automation for a user friendly and transparent tax administration. The bottom line was to facilitate the tax payers, improve compliance, promote growth, reduce transaction costs and thus to increase tax to GDP ratio. The recommendations contained in the Report can broadly be divided into three categories. First are those relating to tax administration and its reform, second deal with automation and computerisation of the business processes and the third set of recommendations concern the tax structure and rates. When implemented as a package the Task Force is convinced that these would combine to achieve the desired objectives. While firming up the recommendations far greater debate was generated in respect of the suggested tariff rates than on the measures for improving quality of tax administration including increased automation. Therefore, it need to be re-emphasised that expected results would be achieved by a holistic approach and not by attention to only one aspect of the Report viz. relating to the tariff. As mentioned in the Consultation Paper, the potential benefits to the economy from the implementation of the package of recommendations can be considerable, with the reduction in the transaction costs itself estimated at 50 percent and the potential gains

to the economy in the range of Rs.4000-5000 crores annually. The gains would reflect in increased exports, greater compliance leading to higher revenues and increase in tax to GDP ratio thus reinforcing the fiscal consolidation. The Task Force reiterates the importance of these gains. The consultation process identified a number of areas where a re-look will be helpful for improving the proposals. The Task Force has modified the proposals while maintaining the thrust of the approach to the systemic reforms. It is a matter of satisfaction that as per the response received there was near unanimity in regard to the majority of the proposals contained in the Consultation Paper. However, what came to the forefront was a pronounced sense of urgency to act quickly and effectively to bring our indirect tax system at par with the international best practices. This reinforced the view of the Task Force that half-measures would not do and there is a need to provide a big push to the systemic reforms. The bottom line is that immediate time bound investment in information technology, including automation, with human resource development and training and introduction of the simplified tax structure would improve all-round performance in exports as well as lead to higher revenue mobilization and the overall fiscal well being of the country. Thus, it is hoped that this Report serves as an input for the Budget 2003-2004, though some recommendations can be considered for implementation even earlier. The Task Force is grateful for the help rendered by Shri S. Mukhopadhyay, former Member, C.B.E.C., Dr. M. Govinda Rao, Director, Institute of Social and Economic Change, Bangalore, Shri Anupam Dasgupta, Additional Secretary, Department of Revenue and Shri T.R. Rustagi, Chief Commissioner, C.B.E.C. and Shri Arbind Modi. O.S.D. to the Chairman of the Task Force in its deliberations. The Task Force also wants to give a special thanks to Shri Suresh Kumar, T.O., TRU and Shri S. Ravi, P.P.S. to the Chairman of Task Force for their dedicated contribution to its work. A number of organizations, associations and individuals also assisted the Task Force through comments and constructive suggestions. While the response has been of such magnitude that it is simply not possible to individually mention the names of all who contributed, the Task Force would like to sincerely thank all of them.

The Task Force would like to express our gratitude to Chairman and Members of the Central Board of Excise and Customs and officers of the Department of Revenue for their full support and cooperation. The Task Force is grateful to the Ministries and Departments of the Government which commented on the proposals and made valuable suggestions which are now a part of this Report. In conclusion, the Task Force expresses its sincere thanks to Ministry of Finance and Company Affairs for effectively involving all concerned including the common citizen in tax administration and policy through its medium. Truly, this was a path breaking exercise in the democratization of fiscal policy formulation.

(Vijay Kelkar) Chairman of the Task Force on Indirect Taxes

(Prof. Jayanta Roy) Member Task Force

(K.S. Suresh) Member Task Force

(Gautam Ray) Member Task Force

(Sunil Kant Munjal) Member Task Force

(Nihal Kothari) Member Task Force

(Deepak Puri) Member Task Force

(Sanjay Bhatia) Member Task Force

(Y.P.Suri) Member Task Force

(K.S. Ravishankar) Member Task Force

(S.M.Bhatnagar) Member-Secretary New Delhi, 24th December, 2002