Cut in tax rates unlikely, stimulus may stay: India Inc

Finance Minister Pranab Mukherjee may not cut direct tax rates because of revenue implications, but is likely to retain the stimulus in the forthcoming Budget as the economy is still not out of woods, industry leaders said after their customary pre-Budget meeting today.

The Finance Minister was worried about high food prices and sought industry help to reduce them, industry captains said after their meeting with Mukherjee here.

"The Finance Minister was worried about food inflation touching 18.32 per cent. He asked for industry help. But he may not reduce taxes (rates) since fiscal deficit is also high," Venugopal Dhoot, former Assocham President, told reporters after the meeting, which lasted over three hours.

"...It appears that the Finance Minister at least agreed for continuing the stimulus (in 2011-12 Budget)," he added.

When specifically asked what was the demand of industry regarding corporate tax rate, he said, "everybody asked for reducing it. But, I don't think the Finance Minister is in a mood to reduce it," he added.

To help the lower strata of society combat high food inflation, industry also asked the Finance Minister to increase income tax exemption limit from Rs 1.6 lakh to Rs 2 lakh, if he is not able to reduce the income tax rates.

"The government should continue with the stimulus measures as the global economy is not out of the woods," Ficci President Rajan Mittal said.

Mittal said that the industry has asked the minister to reduce corporate tax rate from 30 per cent to 25 per cent, abolish surcharge, education cess and retain peak customs duty at 10 per cent and reduction of CST rate to 1 per cent.

In order to help the industry in the aftermath of the global economic crisis, the government and the RBI provided a stimulus to the economy to tide over the turbulence. The government reduced tax rates and raised public expenditure, while the RBI released more funds into the system.

In view of the economic recovery, Mukherjee had started the process of stimulus withdrawal by raising tax rates in the 2010-11 Budget.

With the economy recording a growth rate of 8.9 per cent in the first half of the current fiscal, Mukherjee is expected to further withdraw the stimulus with a view to reduce the fiscal deficit, which is expected to be about 5.5 per cent of the GDP in 2010-11.

The economy was expanding by over 9 per cent per annum before the global crisis pulled down the growth rate to 6.7 per cent in 2008-09. On the back of the stimulus measures announced by the government, the growth rate picked up to 7.4 per cent in 2009-10 and the economy is projected to chart 9 per cent expansion this fiscal.