Kelkar learns some BJP economics

Frayed tempers, a laptop that didn't work, a serious deficit in the persuasive powers of Vijay Kelkar and the Bharatiya Janata Party's staunch belief that good economics is only as good as the elections it wins, marked the interaction the latest author of tax reforms had with the Rajnath Singh committee members on Wednesday.

The meeting, held at the former Uttar Pradesh chief minister's residence, was a last-ditch attempt to give political acceptability to the Kelkar committee report on tax reforms.

Another report is to be prepared by the BJP and submitted to Finance Minister Jaswant Singh in the next few days.

Wednesday's meeting achieved little with both sides having done their share of lobbying.

Kelkar announced to the committee at the outset that BJP national executive member Arun Sathe, who was on the committee, was his co-brother (their wives are sisters). Shettigar and co were waiting and ready with their arsenal.

The Rajnath Singh committee told Kelkar there could be no negotiation on the tax exemption on housing loans, a cess on kerosene, and the tax on agriculture and co-operatives. This was simply not acceptable.

The party's view was the elimination of the dividend tax should be allowed only for companies investing in the infrastructure sector.

But Rajnath Singh, Jagdish Shettigar, PN Vijay, Arun Sathe, Kirit Somaiya and YRK Reddy -- the BJP leaders who were tasked with discussing the report and introducing the political element in it -- began arguing not just with Kelkar but also with each other, especially on the withdrawal of the long-term capital gains tax.

PN Vijay, the current chief of the BJP's economy cell, and Jagadish Shettigar, the supplanted chief, had words, with Shettigar charging Vijay with a conflict of interest.

Vijay had earlier circulated a note of dissent and favoured Kelkar's proposal for exempting companies and shareholders from paying tax on dividends and long-term capital gains.

Vijay's contention was strongly disputed by Shettigar, who maintained that it would be absurd to dry up a source of revenue by exempting companies from paying the dividend tax.

So heated were tempers that host Rajnath Singh had to order a tea break as time-out.

Sources present at the meeting told Business Standard that Kelkar and his team tried to impress upon Rajnath Singh that the proposals were best suited to raise tax realisation.

However, when they tried to demonstrate this through a PowerPoint presentation, the laptop went on the blink.

An already defensive Kelkar tried to explain that some of the measures seen as causing short term pain -- like a cess on kerosene -- were intended to benefit the oil sector in future.

However, members said taxing kerosene was sure recipe for losing elections.

"This proposal will harm the party's rural interests as the escalation of kerosene prices will affect the whole economy," argued a senior member of the committee.

Similarly, the Rajnath Singh committee also expressed its concern about the adverse political fallout of the withdrawal of exemptions from the co-operative sector.

A member pointed out that taxing co-operative societies would be politically unwise.

"This will discourage the co-operative movement, which is very strong in Maharashtra, Gujarat and Karnataka," commented a BJP leader.

Insiders admit that there is a certain degree of cynicism within the BJP with regard to the Kelkar report. This was evident at the meeting when the committee enquired why the existing tax regime needed to be tinkered with when elections were barely 18 months away.

"It is better to concentrate on toning up the tax administration instead of tinkering with tax structure," a BJP leader said.

Run-up to the Budget 2003