Silent consultations

Among the avalanche of suggestions made to the finance minister for the budget every year, tax concessions obviously figure strongly in the laundry list of every interest group. This is not surprising.

What's surprising is the almost sole focus on tax concessions made by even India Inc in a year when P Chidambaram's travails are the fiscal deficit are so public. That the non-government entities too have made tax concessions their most significant talking point with the finance minister shows how far down this trend has travelled.

2012-14 are the two fiscals where the slow growth of the economy implies there is little tax buoyancy for the ministry to show. Without a special effort reaching the targeted fiscal deficit of 4.8 per cent projected for 2013-14, is slim. At present estimates the gap is over Rs 70,000 crore even if the government borrows at the same pace, next year too. The straitjacket cuts the chance to raise tax rates to create some buoyancy in receipts. There is for instance, little scope to push either excise duty or service tax rates, as they will hit the nascent recovery in any sector. Besides having just made service tax universal, it will be difficult for the ministry to raise rates immediately. The customs duty rates can only go southwards from here.

In direct tax the possibilities become more interesting. Chidambaram has publicly debated an inheritance tax and a tax on super rich. Both are obviously counter-productive. Yet while industry leaders have strongly opposed any such move they have no alternative to offer to meet this gap in tax receipts. For instance cutting of exemptions do not figure too prominently in the chambers' wish list, yet the finance ministry analysis shows effective corporate tax paid has risen to over 24 per cent by 2010-11 as the melange of exemptions have got narrowed. Agreed that the ministry keeps a huge sum locked up in fruitless litigation, but that mountain will not melt immediately despite global warming. So if the minister does not try anything here and adds exemptions like taking infra companies out from minimum alternate tax net, it is difficult to figure where the additional money to irrigate some of the deficit will come from.

... contd.

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