The government appointed panel to suggest a roadmap for fiscal consolidation has recommended a comprehensive review of the Direct Taxes Code Bill and bringing in more services in the tax net.
The Kelkar Committee also recommended amendment to the law to make quoting PAN or the UID mandatory in all electronic transactions including bank accounts, fixed deposits with banks, salary payments and immovable property transactions, irrespective of the the amount or level of transaction.
Online verification of PAN could be made mandatory for high value transactions to reduce use of black money, it said. Highlighting that non-issue of refunds is a constant source of grievance for taxpayers, the panel said "all pending refunds should be issued at the earliest.
This will also improve liquidity of taxpayers and reduce their dependence on market borrowings at a relatively high interest rate". Besides, the Income Tax Department should create a national portal to enable taxpayers to file applications seeking rectifications and appeal effect, it said.
Referring to the Direct Taxes Code Bill introduced in Parliament, it said the proposed legislation which intends to revamp the law relating to direct taxes is likely to result in considerable unacceptable losses on a continuing basis.
"Given the low tax-GDP ratio and the existing fiscal crisis, there is absolutely no fiscal space for such large revenue loss. Therefore, the Direct Taxes Code Bill, 2010 should be comprehensively reviewed before it is enacted into law for implementation," the Kelkar committee report said.
Standing Committee for Finance has already given its report on the Bill. On the indirect taxes, it suggested that the negative list of services should be reviewed for "further pruning". "For example, there is no case for exempting non profit organizations from the Service Tax levy," it argued.
It also pitched for expediting implementation of the Goods and Services Tax (GST) regime. This will enhance output, exports and tax revenues, it said.The Kelkar report said that even though the roll-out of GST from April 1, 2013 does not appear to be feasible, the passage of the Constitutional Amendment Bill in the Winter Session would send out very strong signal about the government's serious intent to move forward on this issue.
It further suggested that Central Board of Excise and Customs (CBEC), responsible for indirect tax collection, should put in place a robust information system to increase the deterrence level and the cost of evasion.
CBEC should also develop a similar model for comprehensive cross verification of claims for input tax credit, it said adding this should be implemented immediately and need to wait till the introduction of the GST.
The Union Excise Duties (UED) and Service Tax (ST) must be reformed so as to be in a state of preparedness for smooth integration of these levies into the GST, it said. "The standard rate of 12 percent should be progressively reduced to align with the GST rate of 8 percent proposed for the Central GST," the report said.
The panel has also suggested to the Income Tax Department to establish a data-warehousing and data-mining infrastructure within the tax administration and build capacity for undertaking data mining and taxpayer profiling.
It further suggested to amend the provisions of all tax laws to charge interest at rates which reflects the market rate of interest to the defaulters and a penalty for such default. The Income Tax Department, it suggested, should set-up a separate Directorate of Risk Management for designing a robust risk management system which will improve the efficiency of the tax administration and enhance transparency.
The panel is also for a 360 degree profile of all taxpaying individuals and institutions to help decrease tax evasion and tax fraud. This profile should also draw information from the AIR, TDS and other databases of the department, it said.
Talking about disinvestment, the Kelkar panel proposed a 'Call Option Model' under which the government may offer for sale, simultaneously, multiple securities over a period of time until the divestment targets are achieved.
It said the salient features of this proposal include an opportunity to sell regularly as against a large stake sale on a single day. "This is to address the issue of wide fluctuation in market prices arising out of additional flow of liquidity in to the market and to avoid market price volatility, if any," the report added.