NEW DELHI: Finance Minister P. Chidambaram on Friday underscored the need for a re-look at the tax system and pruning certain incentives for meeting the Fiscal Responsibility and Budget Management (FRBM) targets as also increase the tax to GDP (gross domestic product) ratio.

Initiating a discussion on `Tax expenditures of the Central Government' at the meeting of the consultative committee attached to his Ministry here, Mr. Chidambaram said the tax sops were, in fact, forgone tax revenues attributable to provisions in tax laws, which allow a special exclusion, exemption or deduction from taxes or provide a special credit, a preferential tax rate or defer the tax liability.

Every tax concession, he said, was introduced with a specific purpose. However, it was required to be reviewed on a periodic basis with the objective of improving fairness, transparency and efficiency of the tax system while meeting the Government's priorities and eliminating inefficient and inappropriate tax expenditures.

To achieve an equitable tax structure based on moderate rates and to generate adequate resources for funding social and physical infrastructure, Mr. Chidambaram said "a close, hard look at the present system of exemptions in favour of particular sections of taxpayers is absolutely essential.''

The draft Approach Paper to the Eleventh Plan, he said, assumed tax to GDP ratio of 13 per cent by 2011-12. As opportunities for raising additional resources through new or higher tax rates might be limited, tax incentives, therefore, needed to be pruned to achieve the targeted ratio as also to meet the target set by the FRBM Act for elimination of the revenue deficit.

This, he said, would help in increasing the tax base substantially and also enable the Government to "moderate the tax rates significantly" and facilitate movement towards an integrated GST (goods and services tax) by 2010.

Keeping in view the need for promoting the Centre's social and regional development goals and provide special incentives to targeted groups, tax expenditures might still be justified, he said. On that account, some exemptions might be required to be retained for a longer period than others, he said.

Participating in the wide-ranging discussions, the committee members broadly welcomed the papers circulated by the Ministry and stressed the need for rationalising the tax structure to bring more people into the tax net.

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