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Reduce deficit, Sinha tells states

Finance Minister Yashwant Sinha on Thursday asked state chief ministers to reduce deficit by raising capital expenditure and containing non-plan expenditure, and not to hesitate to take tough decisions to restore overall stability.

"Difficult decisions will have to be taken by all of us so that we may successfully face the challenges of the new millenium," Sinha told the chief ministers' conference, adding that "considerable spadework is required for speeding up the reforms process."

Sinha also called on the states to meet the deadline of implementing value-added tax, or VAT, system on April 1, 2001 through the passing of the VAT legislation and framing of rules and regulations.

The meeting, convened to discuss tax reforms and introduction of VAT, will also debate on the issue relating to service tax as a measure for broadening of the tax base.

"We are well aware that services contribute about 40 per cent of our GDP and, in the Finance Act 2000, I had announced setting up an expert group to study and advise the government about the coverage and structure of service tax related matters," he said.

Sinha congratulated the state governments for implementing decisions taken at the previous conference in November last year and said this had enabled them to broaden the tax base and formulate rational and simple tax laws.

He said minimising the distortionary effects of the old tax had enabled augmenting of revenue which was a step in the right direction.

On the implementation of uniform floor rates of sales tax, Sinha said though it was laudable and a matter of great satisfaction, "there are still some deviations in certain states".

Stating that only total compliance would preclude any occasion for rate-war amongst states, he said it had been noticed that a large number of rate slabs continued to exist.

"It would be ideal to have convergence of rates as it will facilitate introduction of VAT," he said.

On the problems of states relating to the identity of the listed item, i.e. the items listed in the state sales tax laws, Sinha said the Centre proposes to entrust the task of undertaking harmonized classification and coding of commodities to the Centre of Taxation Studies, Kerala.

He said that once the report was ready, it will be circulated to the states for their concurrence.

PTI

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