NEW DELHI: With the Budget just ten days away, Parliament's Standing Committee on Finance has recommended tax on farm income and putting all non-essential services under the tax net. It has also called for a complete revamp of export promotion schemes to check tax evasion and widen the tax base.

In its final report on `Widening of tax base and evasion of tax' tabled in Parliament on Friday, the committee said: "With reference to persons having both agricultural and non-agricultural income, perhaps the time has come for the Government to seriously consider fixing, in consultation with State governments, a threshold limit beyond which, the income of such persons from agricultural sources could be brought under the tax net."

Concern over tax evasion

The committee, headed by B. C. Khanduri (BJP), also expressed concern over tax evasion by people engaged in non-agricultural activities such as trading in rural areas and advocated steps to discourage private money lending.

On services, the panel noted that the sector's contribution to tax revenues was not in proportion to its massive share in the gross domestic product (GDP) and, therefore, barring basic and essential services, all others should be brought into the tax net in one go.

The committee also recommended the legislation of a separate law for service tax, with a clear definition of the service components. This, it said, was necessary to avoid the chances of any dispute between the Centre and the state tax authorities as also prevent double taxation by way of value added tax (VAT) of the states as well as service tax. Concerned over the aspect of tax evasion, the committee noted that such malpractices resulted in a major dent in the Government's revenue collections.

Law for service tax

Citing an instance, it said the data furnished on misuse of export promotion schemes alone revealed that the amount evaded during 2002-03 to 2004-05 was a huge Rs. 3,442 crore.

"The aspect of blatant misuse of various export promotion schemes is evident from the fact that the Government has decided to withdraw the Target Plus scheme following the advice of the Committee of Secretaries," it said in its report, and added that "the committee is, therefore, of the view that there is an urgent need to review all the existing export promotion schemes after obtaining necessary inputs from the Director-General of Foreign Trade and the Directorate of Revenue Intelligence (DRI) so as to make them evasion proof."

Luxury car imports

Also, in a specific reference to the import of luxury cars, the committee noted that of the 499 vehicles imported till date, 61 were identified to have been misused.

"What is particularly disturbing is that import licences have been reported to be issued to non-existent or fictitious firms," the panel said.

Turning to real estate, the committee said transactions in this sector were believed to be a major field for creation of black money. In fact, the high rate of stamp duty levied by states was also perceived as a major reason for undervaluation of property transactions, it said. The committee pointed out that the massive amount of Rs. 98,614 crore as revenue arrears relating to taxes was nearly 75 per cent of the total direct tax revenue realised during 2004-05.

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