New Delhi: The government is likely to keep tax rates broadly unchanged in its budget next Monday and explore other avenues such as 3G wireless spectrum auction and stake sales in state firms to raise cash.
The government can ill afford tax cuts as they could dent revenue receipts and widen an already bloated fiscal deficit, while an increase in the tax burden could reverse the stimulus needed to accelerate growth.
The budget may outline tax reforms such as introduction of a new Goods and Services Tax from April next year, aimed at reducing the burden on companies.
Following are some of the likely tax proposals, according to industry groups, tax consultants and media reports.
Also Read | Budget 2009
** Likely to keep corporate tax rate unchanged at 30 percent.
** May consider tweaking Fringe Benefit Tax, levied on perks given to employees by a company, and Minimum Alternate Tax paid by firms who have book profits but report net loss. Both are at 10% now.
** Tax breaks likely for infrastructure and exporting firms.
** Tax exemption on the portion of profits set aside by companies for investment, and an increase in the depreciation rates to 25% from 15% for plant and machinery to speed up capacity expansion.
** Relief to individuals by raising tax-exempt savings limit beyond Rs100,000 ($2,079).
** Raising exemption limit on interest paid for home loans beyond Rs150,000 to boost housing sector, and raise demand for cement and steel.
** Slowdown in economy led to a Rs43.6 billion shortfall in corporate tax receipts in 2008-09 (April/March) compared with the initial budget target, while the shortfall was Rs157 billion for income tax.
** Unlikely to change excise or factory-gate duties after they were cut by 2 percentage points each in December and February to stimulate a slowing economy. Most of the manufactured goods attract 8% duty now.
** Customs duty levied on imports might be retained at present levels of around 10%. Industry lobbies have demanded cuts in the duty rates on some industrial inputs.
** Excise duty cuts and decline in factory output in the latter half of 2008-09 led to a revenue loss of Rs300 billion, while a fall in imports and lower crude prices dented customs duty receipts by Rs109.3 billion in 2008-09.
** There was some talk of raising tax rates on services beyond 10%, but the finance ministry may not tweak them. Only 100 major services are taxed and there is scope to extend the levy on more services.
** Service tax receipts grew marginally to Rs650 billion in 2008-09, compared with an earlier target of Rs644.6 billion, despite a cut in the rate in February.
Non-Tax Revenues, Reforms
** The government aims to raise at least Rs200 billion from sale of 3G spectrum. The auction was originally planned for January but has been delayed pending a review of the floor price.
** Stake sales in state-run firms could be actively taken up to help raise cash needed to fund infrastructure and welfare schemes.