The government is having a re-think on altering the corporation tax rate this year. It is unlikely to reduce the rate because of concerns over possible loss of revenue.

Government sources said the Centre was not sure about the impact of the value-added tax on states and was also expecting some revenue loss owing to a reduction in import duties.

Run-up to the Budget: Complete Coverage

In the current fiscal year, the government is expecting a shortfall in excise collections. As per trends, the shortfall is estimated to be Rs 6,000-7,000 crore (Rs 60-70 billion). Advance tax collections, too, have fallen short of Budget targets.

At 35 per cent, corporation tax in India is higher than in many countries, including China (33 per cent), Singapore (22 per cent), South Korea (29.7 per cent), Malaysia (28 per cent), and Thailand and Indonesia (30 per cent each).

The government had anticipated an over-40 per cent growth in corporation tax collections at Rs 88,436 crore (Rs 884.36 billion) during the current fiscal year but was facing a shortfall till December owing to lower advance tax payments by petroleum companies and banks.

The finance ministry had been contemplating a reduction in corporation tax, from 35 per cent to 30 per cent, coupled with the phasing out of exemptions.

The idea was to integrate personal tax and corporation tax in line with the recommendations of the Kelkar task force and the advisory group on tax policy for the Tenth Plan.

States are to implement the value-added tax from April 1, 2005 and the Centre has agreed to provide 100 per cent compensation to them in the first year.

"While the experience in Haryana does not indicate the possibility of a revenue loss, at a pan-India level, the impact is difficult to assess," said an official.

The government is planning to provide Rs 1,200 crore (Rs 12 billion) to Rs 1,500 crore (Rs 15 billion) in the Budget as compensation to states to tide over the VAT fallout.

The officials said the government had already announced its commitment to reduce Customs duties to Asean levels and tariffs on a large number of products were to be slashed in the Budget. This, they said, would result in a revenue loss to the government.