Budget to go by Kelkar, Rajnath on taxes

Raising Income Tax exemption limit to Rs 70,000-80,000 and retaining Standard Deduction along with tax sops for small savings and housing loans, the Budget to be presented on Friday is expected to carry out a "clean up" operation of tax administration besides measures to spur growth.

The maiden Budget to be presented by Finance Minister Jaswant Singh in Parliament is likely to carry out the roadmap laid out by Kelkar on indirect taxes and implement the suggestions of Rajnath Committee on direct taxes which has dumped some of the proposals made by Kelkar, official sourcessaid.

The Budget widely expected to carry forward reforms to widen the tax base, is also expected to make an attempt to control expenditure by cuttting unmerited subsidies and lowering interest rates on small savings to contain whopping fiscal deficit, that is crowding out investment.

The pre-budget economic survey has given clear signals in this direction by asserting "there is an imperative need to address the three issues of infrastructure, regulatory and tax reforms and fiscal consolidation to establish the foundations of robust 8 per cent growth on a sustained basis."

The sources said though Finance Minister is likely to indulge in some populism in the face of stiff resistance from BJP to Kelkar panel recommendations, the budget may contain measures that would ensure that the revenue loss that may occur was more than made up by widening service tax base.

Service tax collections target be doubled next fiscal from this year's figure of Rs 6,250 crore (Rs 62.5 billion).

On indirect taxes the broad suggestions of Kelkar panel are likely to be implemented, the sources said adding the average customs duty on the finished products may be brought down to 25 per cent while that of raw material to 15 per cent.

There may be a reduction in special additional excise duty by four per cent making consumer durables, automobiles that much cheaper.

While corporation tax is likely to be retained at the present 35 per cent the five per cent surcharge on it might be lifted, the sources said, adding the recommendations of Kelkar panel to abolish minimum alternate tax, dividend tax and long term capital gains tax are likey to carried forward to spur investment.

The loss of revenue as a result of this abolition would not be much as this was expected to generate the feel good factor at a time when there were signs of industrial recovery, the sources said, adding with growth picking up, the revenue collections from excise and customs are expected to go up.

Singh's hands may be tied to implement the Kelkar panel suggestion to raise the Income Tax exemption limit to Rs 100,000 because of the opposition by Rajnath Committee to lifting of exemptions and tax sops on Personal Income Tax, they added.

The budget is expected to spell out the measures to further liberalise Foreign Direct Investment regime on the lines of suggestions made by N K Singh.

With external debt crossing over $100 billion and debt servicing accounting for about 50 per cent of revenue collections, Singh may announce pre-payment of some of the high cost foreign debt with foreign exchange reserves swelling at over $74 billion, the sorces said.

Government has already announced prepayment of $2.8 billion worth of ADB and World Bank loans this year, they said, adding there could be repayment of foreign debt up to $10 billion including resurgent India Bonds of SBI, whose redemption would start in September.

Deviating from the past practice, Singh's Budget speech is expected to be much shorter than the 72 pages of Part A and Part B of budget last year.

The sources said Singh was writing the Budget speech himself with the inputs from officials and that it would be meant for common man and small investors and not the usual audience of professionals.

He has already promised that his job as Finance Minister is to put more money in the common man's pocket and house wife's purse to spur demand.

PTI