THE CHELLIAH committee recommendations on tax reform, if accepted, would result in a heavy loss of revenue to the central and state governments and aggravate their fiscal and budgetary deficits. Most of the recommendations are theoretical, lack holistic approach and vision and may prove to be counterproductive to the nation as whole.

The tax reform committee headed by former planning commission member Raja Chelliah has recommended lowering of corporate taxes on domestic companies from the present level of 51.75 per centto to 45 per cent in 1993-94 by abolishing the surcharge and to 40 percent in 1994-95 by abolishing interest tax and continuing with the gift tax after raising exemption limit from Rs. 20,000 to Rs. 30,000; avoiding double taxation of foreign companies; taxing nonagriculturists' agricultural income above Rs. 25,000; gradual reduction in number of rates moving them towards three rates between 10 and 20 per cent; and replacing permanent account number by identification number.

The committee has not considered the effects of its recommendations on the revenues of the central and state governments. The major portion of central government's revenue accrues from excise, customs and corporate taxes which are shared between the centre and states in the ratio of 3:1. The gross tax revenue receipts for 1992-93 are Rs 76,524 crore, of which Rs 8,125 crore is estimated to accrue from corporation tax, Rs 800 crore from interest tax, Rs 25,212 crore from customs and Rs. 32,211 crore union excise. One fourth of the total estimated tax revenues for 1992-93, ie, Rs 19,992 crore, would go to states.

If the recommendations are accepted, the estimated loss to the government in the first year itself may be to the tune of Rs. 3,000 to 4,000 crore. Lowering of taxes, as generally believed, may yield results in the long run. But when the government is facing an economic and structural reforms, can it be prepared for such a heavy loss of revenue? Will the government be able to contain its budgetary deficit to a tolerable level?

Moreover, it is erroneous to compare tax rates prevailing in India with other developed or developing countries. India's need for more funds to meet the needs and aspirations of its fast growing population, the majority of which lives in backwards, is paramount. The committee has ignored the fact that there are wide diversities in the economic structure, resource endowments, and the internal and external environments of India and other countries. While the primary focus of the developed economic is on sustained noniflationary growth, our primary requirement is to improve our deteriorating economic performance and invest heavily in social and economic infrastructure.

The committee has also not examined the effect of its recommendations on the savings, investment patterns and growth of companies. Companies have reported a very low rate of savings. Investment has fallen in the last few years and the growth rate, particularly in the last year, has been deplorable. The committee has also made no recommendations to control the evasion and avoidance of both direct and indirect taxes by companies.

The recommendation to remove most of the tax incentives lacks vision. The incentives have been introduced from time to time considering various socioeconomic aspects studies have indicated that they have served a useful purpose. The abolition of interest tax would result in an an estimated loss of Rs. 800 crore to the exchequer. Why should banks and financial institutions earning interest be exempted from paying taxes?