Economic Survey favours overhaul of tax exemptions, strict penalty

The Survey has suggeted moving from officer-based assessment to a system of self-assessment for business process re-engineering.

A day before Union Budget for 2004-05, the Economic Survey on Wednesday called for "overhauling" of tax exemption regime saying low Tax:GDP ratio was a prime concern coming in the way of improving Government finances.

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In tandem, Government should evolve innovative tax procedures and simple laws with "strict penal mechanism" to check tax evasion, the Survey, tabled in Parliament by Finance Minister P Chidambaram, said.

"In the process of fiscal consolidation with a low Tax-GDP ratio, revenue augmentation should be the prime concern," it said.

Strongly recommending phasing out of tax exemptions, the Survey said: "There is a clear need to overhaul the regime of exemptions, reduce the number of notifications, simplify procedures and move towards a paperless and transparent administration anchored on trust."

"It is equally important to establish a rigorous penal and enforcement mechanism that takes care of those who violate the trust imposed, as is the practice in countries with low rates, simple tax laws and procedures," it said.

The crux of business process re-engineering lies in moving from the present officer-based assessment to a system of self-assessment, random validation and enforcement, it said adding: "This process is likely to be hindered by presence of large-scale evasion-prone cash transactions."