Despite pressures from the Left parties to hike taxes on the rich and corporates, the Union Budget for 2005-06 is unlikely to be harsh on these sections while revisiting the tax structure to make it 'simple and compliant' and growth-friendly.
The possibility of a fresh amnesty scheme to unearth black money is also being ruled out.
As part of the comprehensive tax reforms promised by Prime Minister Manmohan Singh and Finance Minister P Chidambaram, the Budget will take a 'hard look' at all the tax exemptions to improve tax-GDP ratio that will spare the sops in the growth sector of housing and savings, authoritative sources said.
In line with its Common Minimum Programme, the second Budget of the United Progressive Alliance government is expected to go ahead with 'big-ticket' items of expenditure like rural employment guarantee scheme, food for work programme, irrigation, health care and education. It will also step up public sector investments in power, irrigation, roads and ports, they said.
Days after the Left parties gave a 12-point wish list to be included in the Budget, the sources indicated that the basic thrust of the reforms would strive to remove the 'distortions' in the tax structure.
The attempt will be to keep it simple, easy and compliant so that there is better collection of revenue. It would also look at the convoluted duty structure in petroleum, man-made fabrics, sugar, telecom and pharma sectors.
While formulating policies on corporate taxes, the sources said the government will have to keep in mind the fact that industry is the main job giver and needed to be helped.
At the same time it will have to mop up tax revenue for development.
On exemptions, the sources said there will be 'a good, hard look' at them because there cannot be a claim to permanent exemptions. Some exemptions will have to continue in the interest of the growth particularly the booming housing sector.
While there is need for some exemptions, the sources said whenever an exemption is granted, it should be accompanied by a 'sunset clause' so that it is not permanent.
The finance ministry may also consider restructuring income-tax slabs so that the 10 per cent tax rate on income between Rs 50,000 and Rs 60,000 can be abolished.
Enthused by the 2 per cent increase in the savings rate to 28.1 per cent in 2003-04, the sources said savings needed to be encouraged for more investments. But at the same time it should be ensured that tax incentives do not become a 'tax-shelter.'
The tax-GDP ratio has improved this year and the budget would attempt to raise tax-GDP ratio by at least one per cent in 2005-06 which has to be sustained in the next two to three years.
As promised in the Common Minimum Programme, the sources said the tax rates will have to be 'moderate and stable.' The attempt would be ensure that the rates remain the same in the next four to five years.
Regarding speculation about fresh amnesty schemes for tapping unaccounted money, the sources said there was no no scope for it.
Asked whether the budget would have schemes for tapping black money in view of the CMP stand that unaccounted money should be unearthed, the sources said one could not think of such a possibility. They pointed out that what the CMP was only measures to bring out the unaccounted wealth and did not not seek such schemes.
On revenue collections, the sources said new collections have been mixed but still good considering the fact that the Government took a 'major hit' on customs and excise to mitigate inflation on account of surging global crude oil prices.
The banking and petroleum sectors recorded lower profits but some others did reasonably well. What is lost in one is made good in another, the sources said.
On the expenditure side, the sources said the thrust is 'very clear.' The big-ticket items in the Budget will be sarva siksha abhiyan, food for work, rural employment guarantee, health care and irrigation.
On the investment side, the sources said: "We are clearly pushing ahead with public sector investments in power, irrigation, roads and ports."
The fiscal deficit situation is not expected to go out of control in the current year particularly in the light of savings expected in expenditure after the government disallowed bunching of expenditure by various ministries and departments in the last quarter by putting a cap of 33 per cent of total budgeted annual expenditure for utilisation in a quarter.
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