Even as it is clear that the next budget will be rurally skewed, investment oriented and written with the paramount objective of reining in the rising fiscal deficit, the Government’s thinking is to raise revenues wherever necessary.
At the same time, the Government will ensure that the efforts to raise revenues do not result in inflationary pressures. There is already concern within the Government at inflation hovering around 6 per cent.
To achieve this, the Finance Ministry is exploring several avenues. Not only will it reduce the corporate tax rate by 2.5 per cent from 35 per cent to 32.5 per cent (while maintaining the surcharge at 2.5 per cent), a key measure which will go with prospective effect is the backward area benefit under section 80IB for companies. This effectively provided a tax holiday for ten years for telecom companies, hotels and other enterprises.
There is an increasing realisation within the Finance Ministry that these benefits have achieved their goal of encouraging investments in targeted areas and the Government should plug this option so as to raise revenues without severely impacting on the aam aadmi.
Concurrently, as reported by the Hindustan Times, the service tax base will be enhanced significantly, as also hiked from 8 per cent to 12 per cent. However, exemptions on technology flows would ensure that the impact of the service tax hike is not correspondingly passed on to the consumers.
{{/usCountry}}Concurrently, as reported by the Hindustan Times, the service tax base will be enhanced significantly, as also hiked from 8 per cent to 12 per cent. However, exemptions on technology flows would ensure that the impact of the service tax hike is not correspondingly passed on to the consumers.
{{/usCountry}}Sources reveal that an additional 100 services, in the main construction activity, road transport, legal and tax consultancy services, recreation services et al will be roped in. With services now contributing 51 per cent to the nation’s GDP, this move is expected. Service tax contributed Rs 8,300 crore in the last fiscal and this is expected to double to Rs 166 crore.
The stock markets, meanwhile, expects the Finance Minister to introduce a turnover tax on share transactions while abolishing capital gains tax.
Initially, the expectation is that the turnover tax will be 5 basis points for the cash segment only. The long standing problems over the Indo-Mauritius double taxation treaty will also be eliminated.
The 'misuse' of the Mauritius route through shell companies has often raised the hackles of purists. Regional markets like China, Hong Kong and Singapore among others have zero tax on capital gains and find turnover tax an equitable means of taxation.
Furthermore, the exemption limit under the Income Tax Act is likely to be raised while maintaining the tax rates. And using the finance minister’s doctrine of proportionality, the higher income levels will see a cess for education at a presumable 2 per cent. However, indications are that the education cess will be raised from persons in the tax bracket of Rs 8 lakh per annum and above. There is also every likelihood that the budget will announce the phasing out of various deductions under the Income Tax Act from the next budget. The Government may utilise the occasion to assess the 'salaried class' reaction to phasing out of deductions.
Taxing times
** Cess on oil products for road projects will continue
** Infra bonds at low rates to unearth black money
** Incentivise for enhancing investments in irrigation projects
** Provision of tax exemption for distribution companies