There are few who will argue with the main recommendations of the Kelkar taskforce report on implementation of the Fiscal Responsibility and Budget Management Act, 2003. It has suggested lower tax rates in general - whether it is Cenvat, VAT, corporate tax or income tax. It has also suggested allowing states to tax all services and move to an integrated goods and services tax while doing away with other taxes like octroi and sales tax. Predictably, the noise following the release of the report has been largely positive.

But can the report be implemented? Senior ministry officials acknowledge that interest groups lobbied to stall the implementation of the earlier Kelkar report on direct and indirect taxes. Systems that minimise discretion will generally lower corruption avenues. This is particularly true for the states where levy of octroi, stamp duties, entry tax, etc. are big opportunities for the tax administrators to make money.

Even corporates while welcoming the report may not actually lobby for its implementation. "With the present exemptions and incentives, very few corporates pay the actual applicable tax rate. So, who wants this system to go and a new transparent system to replace it?" points out a ministry source. The effective tax rate of a sample of 2,585 companies in 2000-01 was 21.9 per cent as against a statutory rate of 39.55 per cent. In 2002-03, a sample size of 1,334 companies showed an effective tax rate of 24.57 per cent. Clearly, companies can greatly lower their tax burden by avoiding the law and exploiting the loopholes in it.

While everyone seems thrilled with Mr Kelkar's effort, the success of the report can only be judged when its implementation is "permitted".