Though it has made no changes in tax rates, the government in its interim budget made a case for cutting them to encourage domestic consumption for boosting growth in the economy, hit by the worsening global scenario.
“In the days of financial stress, tax rates must fall and our ability to pay taxes must rise,” Finance Minister Pranab Mukherjee said in his budget speech on Monday.
With the fiscal deficit set to touch 6 per cent in the current financial year, against the budget estimate of 2.5 per cent, he said tax collections were of little help as there was a major shortfall compared with the budget estimates.
For 2008-09, the estimate of tax collection was cut to Rs 6,27,949 crore from the budget estimate of Rs 6,87,715 crore primarily on account of the government’s pro-active fiscal measures initiated to counter the impact of global slowdown.
“Planned expenditure may have to be increased substantially by the new government. ... Since the scope for revenue mobilisation is limited in a period of slowdown, rise in plan expenditure will increase fiscal deficit,” he said.
Signalling the way forward for the next government, Mukherjee said the current government had undertaken comprehensive reforms of the tax systems, both direct and indirect, to improve its efficiency and equity.