FM takes steps to increase govt revenue

A reduction in current account deficit (CAD) is just one of the perks of the new Know Your Customer (KYC) norms on gold purchases. These norms will also serve as an effective tool to widen the tax base. CNBC-TV18’s Ashmit Kumar reports.

Finance Minister P Chidambaram's revenue problems are simple. He needs more revenues which means he needs more people to pay up and for that he needs to bring more transactions within the tax net. First, here are his measures on the direct tax front. 

FM has proposed tax deducted at source (TDS) at the rate of 1 percent on transfer of immovable properties above a threshold of Rs 50 lakh. Secondly, he has proposed TDS at 1 percent for cash sales of bullion and jewellery above a certain threshold.
Thirdly, the government has introduced stricter KYC norms for retail purchases of precious metals like gold and platinum, and precious stones like diamonds and rubies above Rs 50,000. This last measure seeks to address the government's belief that most black money in the country, which the government is keen to tax, is laundered through such transactions. However, experts are skeptical about the government's ability to implement these new rules, especially on property deals and gold purchases. Also, there is the move to widen the indirect tax net.
The government says that of the 17 lakh registered service tax assesses, only 7 lakh assesses file returns. So, it has introduced a one-time amnesty scheme, with a waiver on penalty and interest.  The government says this will help it increase service tax revenues by 36 percent in FY14.
Pranav Sayta, tax partner, E&Y says, "Given that the government appears to be gunning for an ambitious service tax collection target, without any major rate hikes, one gets the sense that pc is betting on this and it is likely to pay off."
That's not all. The government has also proposed measures like commodities transaction tax and the removal of excise and customs exemptions in certain areas, to create a wider tax base. However, with a tax-to-GDP ratio standing at a little over 12 percent, experts warn that this will be an uphill task.