FM may not be harsh on taxes

FM may not be harsh on taxes

Pranab plans to inject feel-good factor into economy; more sops for textiles

FM may not be harsh on taxes

“Given the current slowdown in the economy, the Minister is unlikely to be harsh on tax proposals – both direct and indirect taxes. The guiding philosophy behind the proposals will be to promote demand, investments and growth in the economy,” sources close to the budget-making exercise told Deccan Herald.

As far as proposals relating to Income Tax (I-T) are concerned, Mukherjee is likely to go for ‘a marginal hike’ in the I-T exemption limit. The I-T limit, which is currently fixed at Rs 1,50,000, is likely to be hiked in the range of Rs 30,000 and Rs 35,000. The idea was to inject a ‘feel good’ factor into the economy, which was currently being hit by the slowdown, sources said. However, Mukherjee is unlikely to revise existing I-T rates.
To trigger demand in the crucial construction sector, which holds the key to the generation of demand in other vital sectors like steel and cement, Mukherjee may propose hiking the I-T exemption available on payment on both interest and principal amounts on housing loans.

The Ministry of Urban Development, which is pleading for raising the ceiling on housing loan interest payment for I-T exemption, argues that I-T concessions would boost the recession-hit realty and construction sectors, besides giving relief to households affected by the economic slowdown.

Further cuts unlikely

However, as far as the indirect tax proposals, especially those relating to Central Excise are concerned, Mukherjee is unlikely to propose any further cut. The government had effected an across-the-board four per cent cut in Central Excise and two percentage points cut in Service Tax in two stimulus packages as well as in the interim Budget to minimise the impact of the global slowdown. Apart from the likely revenue burden, there is little scope for making any further reduction in Central Excise duty. To promote investment, the Budget is likely to unveil a comprehensive package comprising tax benefits to woo investments in a wide range of the infrastructure sector.

Similarly, there is an expectation that the Budget is likely to propose a series of fiscal measures to provide relief to the textile industry as well as a wide range of export-oriented manufacturing sectors, which have been severely hit by the global slowdown.
Pushing forward the aam aadmi plank of the Congress-led UPA government, the finance minister is widely expected to allocate massive funds for implementing several of its flagship socio-economic welfare programmes like the NREGS, housing for poor, health and primary education.

As part of the strategy to kick-start the economy, the Finance Ministry may step up public spending. Under this head Mukherjee is expected to allocate more funds for boosting infrastructural development. But, at the same time, while focusing on stepping up public spending, Mukherjee will face the accompanying challenge of sticking to the course of fiscal consolidation which calls for minimising government expenditure.

Given the growing apprehension on tax revenue growth remaining subdued for the most part of 2009-10 and most of the other expenditure items like subsidy burden and spending under stimulus packages remaining high, it will be keenly watched at what percentage of the GDP Mukherjee proposes to fix the fiscal deficit.

There is growing expectation that as part of the strategy to put the economy on the higher trajectory of growth, Mukherjee is likely to send signals about the government’s intention to carry forward reforms in a wide spectrum of the economy. The Budget is likely to unveil a roadmap for undertaking the disinvestment of public sector undertakings.

DH News Service

* Package comprising tax benefits to woo investment in infrastructure sector
*Relief measures for textile industry and export-oriented manufacturing sector
*Massive funds for NREGS, housing for poor, health and primary education
*Public spending to be go up; funds for boosting infrastructural development
*Roadmap for disinvestment of public sector undertakings may be unveiled
*No further cut expected in indirect taxes, especially Central Excise duty

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