Companies and individuals fearing higher tax rates in view of a high fiscal deficit may rest easy as the forthcoming budget is unlikely to give them taxing times.
With government deficits hovering around record levels and inflation nearing double-digits at home, and most countries in the world feeling the slowdown pinch, investments are drying up. To improve sentiments, the government is unlikely to tamper with corporate and individual tax rates in the budget, government sources said.
Finance minister P Chidambaram has already underlined the need to follow a tax-friendly regime and a non-adversarial tax administration to raise the tax-to-GDP (gross domestic product) ratio in the country, which is currently around 10% .
A number of think-tanks and policy advisors have proposed that the rich should be taxed more, but the government is not keen on this approach.
"The finance ministry at this point is not going to try new structures especially in taxes as the focus would be to draw investment, even though there have been several proposals suggesting that certain tax rates need to be revised upward in order to boost revenues," an official source told HT on condition of anonymity.
The government has set a target of reducing fiscal deficit to 4.8% of GDP by 2014. The current year's target is 5.3%. According to the roadmap, fiscal deficit would be brought down to 3% by 2016-17.
The government is looking at several ways to bring down expenditure while boosting revenues. The finance ministry is also likely to set a higher disinvestment target of over Rs. 40,000 crore for 2013-14 against Rs. 30,000 crore set for the fiscal year 2012-13.
Global credit rating agency Moody's has maintained its sovereign rating for India at Baa3-— the lowest investment-grade rating — with a stable outlook.