Ensure public finances are healthy before abolishing taxes

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Before abolishing income tax and other levies, India should make sure that its public finances are healthy, economist and UK's Labour Party peer Lord Meghnad Desai said today.

"We have fiscal deficit, we have debt. Before we do any such thing (abolition of income tax and other levies), we have to make sure that our public finances are healthy," Desai said on the sidelines of an event here.

He was commenting on the proposal being talked about by the BJP that relates to abolition of all direct and indirect taxes for individuals as well as corporates in favour of a nominal banking transaction tax.

Desai said: "If people want to do it (abolition of income tax and other levies), then they will have to do it stepwise. I would suggest, first abolish indirect taxes. Indirect taxes affect more people then direct taxes."

He noted however that abolition of income taxes and other levies would be difficult for any government.

"There is also constitutional problem that the Union government only controls direct taxes and some of indirect taxes. The states control indirect taxes and I am told, it will require Constitutional amendment to abolish all taxes," he said.

As for India's fiscal deficit, it had already touched 94 per cent of Budget estimate at the end of November.

Finance Minister P Chidambaram had recently exuded confidence that the government will achieve fiscal deficit target of 4.8 per cent in the current fiscal.

The government has fixed direct tax collection target of over Rs 6.68 lakh crore, and for indirect tax it is Rs 5.65 lakh crore for the 2013-14 fiscal.

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