Direct tax collections are expected to cross Rs3 trillion this year. So, it’s not surprising that there is some pressure on the government to cut income-tax rates.
That would be a hasty step. Mint has already said in an editorial on 24 December that the finance minister should not be tempted by calls for lower tax rates in the new Budget. A group of economists met P. Chidambaram last week and made the same point. C. Rangarajan, chairman of the Prime Minister’s economic advisory council, said on Wednesday that income-tax rates should be retained.
The government’s finances have never been better in the past two decades, thanks to strong tax revenues. But the fiscal deficit is still too high by global standards.
And remember: the babus are due for a big pay hike in a year or two. The last time this happened in the late 1990s, government finances were wrecked. They took a decade to recover. We don’t need a repeat, thank you.