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Economy Jan 14, 2013

Budget wrap 2013: Excise, service taxes may go up by 2%

By Firstbiz Staff

What will Budget 2013, now less than six weeks away, bring by way of tax changes? Many senior government economists, PM's Economic Advisory Council chief C Rangarajan among them, have been talking about taxing the super rich, and the finance minister himself has talked about bringing back estate duty. Today, he announced the postponement of the General Anti Avoidance Rule.

Today's papers had a sprinkling of hints on which way the finance minister may be leaning, and the big revenue raiser may be an increase in indirect taxes, not direct.

Excise, service taxes may rise in the coming Budget

The government is planning a 2 percent hike in excise and service taxes to 14 percent in the next budget, a move that could make most consumer products and services more expensive. But it will earn the government at least Rs 30,000-40,000 crore, the Hindustan Times reported today.

Though this will be for the next year, the government will be able to realise a small amount of this year itself.

Customs duty on crude oil may be restored

As part of measures to shore up revenues to meet its stiff fiscal deficit target and stave off a threatened sovereign downgrade, the finance ministry may reinstate import duty on crude oil in next month's Budget, this Economic Times report pointed out.

A hike in the import duty on gold to curb its imports and tax sops to encourage people to replace idle gold with financial instruments may be in the offing.

In June 2011, customs duty on crude oil imports had been done away with, which put undue pressure on the exchequer. In 2011-12, the government had to forgo revenue of about Rs 58,190 crore, owing to the chop-chop in customs duty on petroleum products.

However, despite the large revenue implications, reinstating the import duty will not be easy as it would increase the price of oil and may leave the government with a higher subsidy bill if pump prices are not raised commensurately, the report said. You can read more here.

Peak customs duty unlikely to be cut this year

Meanwhile, this Business Line report suggests that average peak customs duty is likely to be kept unchanged at 10 percent for non-agricultural goods in the forthcoming Budget as the finance ministry wants to avoid any decision that could lead to revenue loss and worsen the fiscal situation. Secondly, a lower custom duty will expose the local industry to greater competition from imports as it recovers from the effects of the global downturn.

Although India brought down peak tariffs from 20 percent in 2005-06 to 10 percent in 2007-08, it has not made any cuts since then. Read more here

Government likely to hike import duty on gold

A hike in the import duty on gold to curb its imports and tax sops to encourage people to replace idle gold with financial instruments may be in the offing.

The finance ministry is said to be considering these moves which may find a mention in the Budget.

"In the last two months gold imports have risen. It is a cause of concern. Steps are needed...something will be announced in Budget...may be an import duty hike," a senior finance ministry official told PTI.

Chidambaram has already expressed concern over rising imports of the precious metal and hinted at hiking duty on gold imports to curb its demand. The basic customs duty on standard gold bars is 4 percent and the levy on non-standard gold is 10 percent. .

Chidambaram may not tinker with tax slabs despite call for 'super-rich' tax

Despite economists pitching for a higher tax rate for the 'super-rich', Chidambaram may not tinker with the tax slabs but may look to expand the tax reach and look at measures to ensure higher compliance, ministry sources told The Economic Times earlier this week.

PMEAC Chairman C Rangarajan has wondered aloud about raising the tax slab, but also expressed doubts about whether this was the right time to do this kind of thing.

Many economists prefer inheritance tax over a super-rich tax

Other economists, however, have been pitching for an inheritance tax over the so-called super-rich tax as a prescription for raising resources for the government in the budget, according to this Business Standard report.

Though the inheritance tax was abolished in India in 1985 due to increased costs of collection, the hike in the levy of inheritance tax in the US has forced the Indian government to take a relook. According to Dinesh Kanabar, Deputy CEO, KPMG, if there is an inheritance tax then a gift tax would have to be introduced simultaneously otherwise people will give away gifts inter vivos.

Budget 2013-14 to focus on fiscal consolidation

With the promise of retaining the government's fiscal deficit target at 5.3 percent of GDP, Chidambaram is likely to axe expenditure for various ministries and departments.

According a Business Standard report, the agriculture ministry is already facing expenditure cuts of Rs 3,000 crore from its Rs 20,000-crore budget because "the department's spending pattern does not warrant the outlay", while the Department for Cooperation as well as the Rashtriya Krishi Vikas Yojana, supposed to 'incentivise states to increase public investment in agriculture and allied sectors', will have zero outlay for this quarter.

Another ET report points out that other ministries such as space, atomic energy, information and broadcasting, communications and IT, home affairs, rural development, panchayati raj and power can see their allocations trimmed by as much as 20 percent.

by Firstbiz Staff

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