India
While no major changes are expected in the taxation rates, expect the median central excise rate, and the service tax rate to be raised from 10% to 12%.
Updated : Mar 16, 2012, 12:37 AM IST
1. A taxing budget
While no major changes are expected in the taxation rates, expect the median central excise rate, and the service tax rate to be raised from 10% to 12%
In service tax, the government will also introduce a negative list — which will be about services that will not be taxed by the Centre, but by the states
Increase the minimum alternate tax rate to 20% from the current 18.5% for companies
The 10% surcharge on personal income tax returns for high networth individuals
2. No big welfare schemes in non-election year
Welfare schemes may not get a significant boost. With key state elections over and general elections some time away, the government may decide not to hike allocations to schemes such as the National Rural Employment Guarantee Scheme which have increased rural wages, but there has been no commensurate rise in farm output, which adds to the inflation fire
3. What fiscal deficit would it be?
Mukherjee is likely to state India’s fiscal deficit will touch
6-6.5% of GDP (if one adds off-budget subsidies, it will go up
80-90 basis points more) this fiscal. Prudence says he needs to target a fiscal deficit goal of 5% for the next fiscal starting April 1 (5.8% with off-budget subsidies)
What would a higher fiscal deficit mean? It will keep bond yields higher because excess government borrowings will crowd out the private sector from the loans market (or make them pay higher interest rates), and it will increase aggregate demand in the economy (more money chasing goods). It will also widen India’s current account deficit, or the excess of imports over exports
4. Expenditure
Food subsidies will increase due to the implementation of the Food Security Bill, but overall total expenditure growth could be lower than in the current fiscal. That will be a positive
5. The goodies
Increase in exemption limit for home loans from Rs1.5 lakh to Rs3 lakh Increase in tax exemption limit for infrastructure bonds from Rs20,000 to Rs1 lakh
Tax benefits on long-term fixed deposits — currently, the overall deduction limit is part of the Rs1 lakh exemption under Section 80 C — to level the playing field with debt mutual funds. Also, the duration may be reduced from 5 to 3 years
6. The hits
Excise duty rate on most automobiles to be raised by 200 bps, and more for larger cars
Special duty on diesel cars, upwards of Rs25,000
Excise duty on cigarettes to rise to 10%
General increase in excise duty to make many consumer goods costlier
Power equipment from abroad will attract 19% import duty
7. Reforms clarity
Both the seminal tax reforms — GST and DTC — are likely to be slated for April 1, 2012
The government may talk about the Insurance Bill to raise foreign direct investment to 49%
Relaxation of FDI norm in multi-brand retail
Sharpen focus on Accelerated Power Development and Reform Programme or APDRP
Sunset clause on tax incentives for infra projects is likely to be extended by one more year