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In a recent CNN-IBN awards ceremony, when asked by his wife if service tax will be levied on lawyers in the forthcoming budget, the finance minister was tongue-in-cheek in replying that since no one believed the lawyers rendered any services, there cannot be any service tax on lawyers.

Here’s hoping the FM retains his since of humour when presenting the Union Budget 2008.Interestingly, even as this budget is being prepared, direct tax revenue is expected to exceed Rs6,00,000 crore (in 2007-08). An increased focus on tax compliance and a buoyant economy seem to have combined to almost double tax collections over the past three years.

Therefore, it is widely expected that this time round, there would be some relief on the tax front - perhaps an increase in the basic exemption that stands currently at Rs1.10 lakh or may be even the application of the highest tax rate to an income above Rs5 lakh instead of the current Rs2.50 lakh.

But, is there anything apartfrom these rejigs in tax rates that the common man can realistically expect?
Well, the FM has gone on record saying every tax exemption has a strong constituency behind it.

The question is, which constituency to consider and which one to disregard. It follows, therefore, that existing tax exemptions could be cancelled in the upcoming Budget, but in any event, new ones will not be grafted into the tax code.

However, the fact of the matter is that the above is more relevant to the corporate sector than to the common individual, for the simple reason that the common man — me and you — does not have a constituency. Due to this, our tax exemptions already stand cancelled.

Take the salaried class for example. Standard deduction is no longer available. All perks, almost without exception are taxable. Those that aren’t have been brought under the ambit of fringe benefit tax (FBT). As FBT is payable by the employer, in effect those perks too have ipso facto disappeared.

Moving on, Section 80L stands cancelled. Consequently, all interest incomes, including that on Senior Citizens Savings Scheme is fully taxable. Tax-free savings bonds are no longer available.

Section 54EC bonds that save capital gains tax now have an overall limit built in and are no longer available on tap. From the earlier five, now, only two institutions are allowed to issue them and that too with caps. This year, most investors haven’t been able to invest in the bonds simply because they aren’t available.

Section 88 was converted into Section 80C. However, simultaneously, Section 88B and Section 88C that offered additional rebates to senior citizens and ladies have vanished.

Section 80C itself is being treated like a dumping ground with every tax saving investment being clubbed under it - the latest two additions being post office deposits and investments under the Senior Citizens Saving Scheme.

The equation: No constituency = No tax breaks.

So, what should the common man expect from this year’s Budget? Not much. We have already been squeezed so far that there is no further room left.

Nonetheless, some dark clouds loom.
The government wants the retail investor to participate in the market, yet charges securities transaction tax (STT) at both the mutual fund as well as investor levels.

It wants to encourage retail investments in markets abroad, but doesn’t accord mutual funds offering such schemes tax exemptions on a par with other equity funds.

Similarly, fund of funds (FoF) schemes, which are essentially meant for the use of the uninformed equity investor, are denied tax exemption.

Exchange traded funds (ETFs), a beneficial albeit new product that needs encouragement, is charged STT both at the time of buying and selling, like in the case of equity shares.

Then there is the issue of service tax. An increase is very much on the cards. Though an indirect tax, it directly adds to our cost of living.

Expenses on almost all amenities such as telephones, electricity, restaurants, transport, credit cards, etc are subject to the 12% service tax. As this service tax is passed on by the service provider, in effect it is the common man who bears it. Any increase therein thus amounts to increase in the common man’s burden.

Last but not the least, the proposed EET system of taxation hangs like a Damocles’ sword. So far there is a deafening silence on the system, first mooted two Budgets ago. Once the EET regime is operational, all tax saving investments such as PPF, NSC, ELSS, life insurance, etc would be taxable at maturity.

Effectively, then, what the government is telling us is that “We are going to tax your PPF, NSC, ELSS, etc, but can’t tell you when. We won’t tell you to what extent each instrument will be taxed.

We can’t even say for sure whether investments already made prior to this announcement will also be taxed or not. Or, if you have invested in any of these instruments but not claimed tax deduction, whether the proceeds will still be taxed. We prefer to stay silent.”

All things considered, as far as Budget 2008 goes, no news will be good news for the common man.