The Bharatiya Janata Party is likely to oppose the contentious tax reform proposals to reduce and eliminate incentives for housing, small savings and standard deductions pitting Finance Minister Jaswant Singh against his advisor Vijay Kelkar, who headed the committee on taxes that gave its report last week.
The party general secretary Rajnath Singh has convened a meeting of his committee on Sunday next to finalise the response to the Kelkar panel recommendations with some of the "anti-middle class" proposals not finding favour with party functionaries.
"It is a mistake to have appointed Kelkar to head the panel," a party functionary said on condition of anonymity.
"The party will demand that the tax break of up to Rs 150,000 interest on housing loans be retained along with standard deductions and incentives for small savings," he said adding BJP was in favour of doubling Income Tax exemption limit to Rs 100,000 as the party manifesto had advocated it three years ago.
While the party favoured most of the proposals in indirect taxes including lowering of customs and excise rates, it was against the proposals to remove the cess on petrol and diesel saying the cess had helped a great deal in mobilising resources for the ambitious highway project of the Prime Minister Atal Bihari Vajpayee.
Meanwhile, BJP's economic cell convenor P N Vijayan told PTI that Kelkar has failed to take into account critical assumptions, which needed to be factored in the present context of India's economic development.
Vijayan, who is also a member of the Rajnath panel, said it might be true that 85 per cent of the housing loans were less than Rs 500,000 but in the present circumstances no middle class family could buy a small flat for less than Rs 12-15 lakh (Rs 1.2-1.5 million), which meant taking a housing loan of at least Rs 10 lakh (Rs 1 million).
In such a scenario it would not be prudent to reduce the present concession up to Rs 1.5 lakh interest payment on housing loans, he said.
Also, he said there had to be continuity in policy and that it should not be frequently changed destablising the people who had taken long-term loans in the face of incentives provided.
Vijayan said the party was also against the Kelkar proposal to tax agriculture income of non-agriculturists as it would not be workable. "The basic principle is that taxation should be on nature of income and not on the nature of individuals."
The party was however not totally averse to the idea of taxing agriculture income but being a complex and controversial issue, a political consensus has to be arrived at. Also it required amendments in the Constitution, as agriculture is a state subject.
Regarding the Kelkar proposal to abolish tax incentives on savings, Vijayan said at a time when the government was keen to push up savings to achieve higher investment and growth in the Tenth Plan the move would not be prudent.
The effective cost of capital was still high in the country, he said adding this was a matter of concern.
Also Life Insurance and Provident Fund could only provide long term loans, which were required for long gestation investments in infrastructure.
Vijayan did not buy the argument that tax-GDP ratio was falling and this needed to be pushed up to improve revenue generation.
He said best way to mop up more revenue was to push up growth as it is well known that one per cent increase in GDP will fetch thousands of crores of rupees as increased revenue.
The revenue has always been buoyant whenever manufacturing has performed well, he said adding in the early nineties when the manufacturing recorded a double-digit growth, the cutsoms and excise collections were substantially up.
The revenue collections were poor in the last two or three years because the manufacturing sector has not been performing well due to recession.
