Quake upsets FM's budget plans

Quake upsets FM's budget plans
PTI & EEB

NEW DELHI, FEB 4: The devastating earthquake in Gujarat has upset finance minister Yashwant Sinha’s calculations, and he has now to rework the Budget to provide for possible fresh taxes to garner resources for rebuilding the state, estimated to cost at least Rs 25,000 crore. Sinha puts up a brave face by saying that the quake would not impact the budget, even though additional resources would have to be mobilised for Reconstruction, but the fact remains that government will have to take recourse to a fresh dose of taxes, official sources say.

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The sources in private admit that the government is left with no option but to mobilise additional resources and the easiest way would be to impose a stiff dose of surcharge on direct taxes income and corporate taxes.

Going by the positive response of the industry to the two per cent surcharge on direct taxes, the sources said there was every likelihood of a higher percentage of surcharge being imposed in the forthcoming budget to garner about Rs 15,000 crore for rebuilding Gujarat, the sources said.

Armed with the Eleventh Finance Commission recommendations that the government should mobilise resources for natural calamity through a levy of cess and surcharge, Sinha might utilise the opportunity to impose a Gujarat cess to swell the national calamity fund, set up last December with a corpus of Rs 500 crore.

As there is a pressing demand from the industry to withdraw the 10 per cent surcharge on indirect taxes (customs and excise) imposed two years ago, Sinha might oblige them as the tax has been found to be cumbersome.

But instead, he could target the consumption of luxury goods by slapping higher excise duty on white goods, cigarettes and liquor, the sources said, adding, of course, Sinha would have to perform a balancing act by levying additional taxes in a manner so that that white goods industry, reeling under recession, is not hit very hard. The sources said Prime Minister Vajpayee’s assertion that government would resort to non-tax measures as well to mop up resources has only strengthened Sinha’s hands in implementing fiscal reform measures.