In 1991, the Government setup the Tax Reforms Committee under the chairmanship of Raja J. Chelliah to examine the existing tax structure and suggest measures to simplify it.
The committee submitted its report in parts. The first draft was submitted in 1991, followed by other drafts in 1992 and 1993. The Committee suggested that the tax system of the country and laws relating to the taxes should be made as simple as possible.
Important Recommendations
Lowering tax rate and widening spread: Tax rate be reduced to avoid evasion. There is also the need to narrow the spread between the lowest rate and maximum marginal rate (the rate of the highest slab). To neutralize the fall in revenue due to lowering of the rates of taxation it will be necessary to withdraw some of the tax incentives.
Avoiding Double Taxation: An agreement to avoid an individual being taxed twice, thereby lifting industrial sector from stagnation.
Reducing Corporate Tax differences between domestic and foreign companies:The difference between foreign and domestic companies must not be more than 10%. This is to encourage foreign investments.
Other Recommendations
Reducing the cost of imported inputs.
Lowering the customs duties.
Reduction in the number of customs tariff rates and its rationalization.
Simplifying the excise duties and its integration with a Value Added Tax (VAT) system.
Bringing the services sector in the tax net within a VAT system.
Building Tax information and computerization system.
Improving the quality of tax administration system.
The committee’s recommendations are under study. The government later on appointed Kelkar Committee in 2002 which further provided the roadmap for tax reforms in the country.
