A further moderation in tax rates, a widening of the tax base and a phasing out exemptions would be the central themes for the country's next budget due to be presented three months from now, Finance Ministry officials signalled on Sunday.
On current indications, the UPA Government will try and achieve a delicate balance between finding resources for large social sector programmes on the one hand and revenue mobilisation on the other by tinkering with tax rates.
Speaking at the inaugural session of the India Economic Summit sponsored by the Confederation of Indian Industry (CII) and the World Economic Forum, Revenue Secretary KM Chandrasekhar called for fundamental changes to improve taxation.
"We need systemic changes in the machinery to enlarge the tax base. We would work towards creating a stable and moderate tax regime that would widen the tax base," Chandrasekhar said.
But he hastened to add that increasing tax rates was no longer an option.
"We are not going to raise tax rates. But, we are looking at widening the tax base over a period of time and further simplify the existing procedures," he said.
"As we go along, there could be a further lowering of indirect taxes," he said in response to panelists at a discussion who said Indian tax rates, despite reformist measures that resulted in lower rates, were still higher than the international average. "Over the years, dependence on indirect taxes has come down in a big way," Chandrasekhar said.
He said the contribution of indirect taxes to the exchequer has come down to 17 per cent of the total revenue in 2006 from 35 per cent in 1990, while the share of direct taxes have risen to 45 per cent from 19 per cent.
Chandrasekhar said that tax-to-GDP (gross domestic product) ratio would go up to 11 per cent in the current financial year from a little over 10 per cent in 2005-06.