Tax Rates To Be Cut In Big-Bang Budget

Finance minister P Chidambaram is expected to unveil a big-bang budget that would include a slew of innovative measures, especially pertaining to direct taxes and capping of the outstanding debt of the Union government.

The direct tax changes on the anvil include: withdrawal of double taxation of dividends in the hands of the investor; introduction of an expenditure-based assessment in case of professionals like doctors and engineers; a possible tax on expenditure; expansion of the scope of presumptive tax and withdrawal of the 7.5 per cent surcharge on corporation tax.

Having already built up the tempo with a policy blitz in recent weeks, the government is confident that its budget package will kick-start the capital markets and, thereby, revive the underlying growth trends in the economy.

 

The finance ministry is also likely to rationalise the income-tax slabs which would bring about a reduction in the present rates.

For example, the minister may raise the upper limit of taxable income from the existing Rs 1.2 lakh to, say, Rs 1.8 lakh.

This would mean income under the new upper band would attract an income-tax rate of 30 per cent instead of 40 per cent at present.

Policy changes relating to indirect taxes will entail a further reduction in the average level of tariffs to about 30 per cent from the existing 40 per cent. The peak tariff rate is likely to remain unchanged.

Chidambaram is also expected to simplify some tax procedures, including the setting up of an advance tax ruling body for bulk imports. This will usher in greater transparency, leave less scope for disputes and obviate delays in project completion.

This would be over and above the package of measures on the cards for spurring infrastructure investments, revving up export growth, and expanding social sector spending selectively. The first would include a more flexible package of investment norms for insurance and provident funds, which would allow select public sector institutions to access a portion of the funds corpus.

The minister is also expected to propose a statutory cap on the fiscal deficit of the Centre and discontinue the current practice of financing of the budget deficit through printing of money against the issue of ad hoc treasury bills by the Centre.

The idea of a sinking fund has been suggested to ensure not only greater transparency but also to avoid contingency measures in view of the governments rising debt burden.

The sinking fund would be created by earmarking a portion of the Centres receipts including revenue collections. This would then be used to discharge the annual debt obligations of the Centre.

The government is also slated to include its maiden international sovereign borrowing in the budget to ensure transparency and parliamentary approval for the entire transaction.

CHIDAMBARAMS BIG PUSH FORWARD

TAX REFORMS

Double taxation of dividends to go

Individual tax rates to be slashed

Fewer exemption heads

Expenditures tax on professionals

Simplification of tax procedures

Advance tax ruling body for bulk imports

Reduction in average level of indirect tax tariffs

CAPPING THE DEFICIT

Statutory cap on fiscal deficit

Abolition of ad hoc T-bills

Creation of a sinking fund

Introduction of international sovereign borrowing

SOCIAL SPENDING

Package of flexible investment norms for insurance, provident funds