Economists tell Chidambaram not to cut personal taxes

NEW DELHI (Reuters) - India should not cut personal tax rates despite a surge in revenue collections but rationalise excise taxes and mounting subsidies, top economists said on Wednesday.

In an annual pre-budget meet with the finance minister, they said increased collections should not be taken as permanent since the government had big ticket spending coming up, like pay rises to over 3 million government workers when the pay panel submits its report in April.

India's personal tax collections have risen 50 percent to 2.05 trillion rupees between April and December while corporate tax collections have expanded 40 percent.

Hopes for a cut in personal taxes rose after Finance Minister Palaniappan Chidambaram said last week there could be "a case for moderation" of rates if voluntary compliance increased.

"Given the circumstances that there are a lot of fiscal stress points in the offing like oil bonds, pay commission and market stabilisation scheme bonds, it may not be prudent to take this as a permanent feature in tax-to-GDP ratio," said Subir Gokarn, chief Asia Pacific economist with Standard and Poor's.

Other economists said the government should use the rise in collections to clean up the fiscal deficit and also to repair the country's creaky road, port and airport network.

"We suggested that the government should not touch the personal income tax rates. If you have buoyancy in tax revenue, it should be used to increase infrastructure spending or rationalise indirect taxes," said Rajiv Kumar, director at the Indian Council For Research on International Economic Relations.

India's plan panel, the government's economic think-tank, has projected a need for $500 billion over the next five years to develop infrastructure and sustain 9-10 percent growth.