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Through my policies on taxation, I wish to signal that we remain committed to moderation and stability in tax rates; that we remain committed to increasing revenues from direct taxes and excise duties; and that we remain committed to expanding the service tax net because the services sector accounts for 51 per cent of GDP. I shall also use tax policies to provide incentives to certain kinds of investment and to influence certain kinds of behaviour in the market.

I am a votary of tax reforms but it would be unwise on my part to attempt to do tax reform in a hurried or piece-meal manner. Seven months from now there will be another Budget, and there will be an occasion to visit the subject of tax reform.

In course of time, it is possible that some manufacturers of handlooms and powerlooms will take advantage of the low uniform rates of duty and opt for the Cenvat route.

There remains only the service tax. I propose to do a major reform and take a major step towards integrating the tax on goods and services. Accordingly, I propose to extend credit of service tax and excise duty across goods and services. In order to neutralize the revenue impact of such extension, and keeping in mind the mean Cenvat rate of 16 per cent. I propose to enhance the rate of service tax from 8 per cent to only 10 per cent.