In the context of post-1991 economic reforms in India, what was the core contribution of the Chelliah Committee, and why was it considered foundational for modern tax policy?
Show answer & explanation
Correct answer: D
Explanation
Solution: The correct answer is It recommended broadening the tax base, reducing exemptions, and rationalizing tax rates to improve revenue efficiency.
Explanation:
☛ In 1991, the Government of India set up the Tax Reforms Committee (TRC) under the chairmanship of Dr. Raja J. Chelliah.
☛ The committee was tasked with recommending a comprehensive agenda for reforming India's direct and indirect tax systems during the post-1991 economic liberalization.
☛ The Chelliah Committee recommended lowering marginal tax rates, rationalizing duty slabs, and broadening the tax base by phasing out unnecessary exemptions.
☛ It argued that moderate tax rates combined with stricter enforcement would encourage voluntary compliance and significantly improve tax-to-GDP buoyancy.
Extra Exam-Relevant Facts:
☛ Service Tax: The Chelliah Committee pioneered the recommendation to tax services, leading to the introduction of Service Tax in 1994 on three initial services.
☛ Customs Duty Rationalization: It suggested drastically reducing peak customs tariff rates to make domestic industries globally competitive.
☛ Excise to VAT: It recommended converting the complex central excise duties into a unified Value Added Tax (VAT) structure.
☛ Vijay Kelkar Task Force (2002): Formed later to further advance direct and indirect tax reforms, which subsequently laid the groundwork for the Goods and Services Tax (GST).
Important One-Liners for Upcoming Exams:
☛ Who is popularly known as the 'Father of Indian Tax Reforms'? → Dr. Raja J. Chelliah
☛ In which year was the Tax Reforms Committee (Chelliah Committee) constituted? → 1991
☛ In which year was Service Tax first introduced in India? → 1994
☛ Which committee laid the initial roadmap for introducing VAT in India? → Chelliah Committee
☛ Which committee set up in 2002 recommended the introduction of a nationwide GST? → Vijay Kelkar Task Force