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Indirect taxes may be slashed
February, 16th 2009

Prime Minister Manmohan Singh has gone through the interim budget-related papers and formally signed the papers before forwarding them to the President, according to an official press note today.

The UPA government is caught in a peculiar situation regarding the sops that it can give in the interim budget, to be announced tomorrow. The indications are that the budget will not be as much pro-aam aadmi, but will be pro-industry. The idea being to save jobs and continue the growth momentum, which is likely to be stumped if the industry-related issues are not addressed immediately.

Being termed as the third stimulus package, sources say that in the given slowdown, there is not much of an elbow room for the government to change tax structure. If it does, then it loses revenue. However, there are some tax measures being incorporated to bring relief to the industry, says a source in the government.

On the direct tax front, there are no major changes expected.But there could be simplification of procedures in filing returns. However, there could be a removal of surcharge on income tax, which is 10 per cent if the income exceeds Rs 10 lakh and on corporate tax.

However, what is expected is that there could be some tinkering in the indirect taxes partial rollback of excise duty on specific growth-hit sectors of the economy, like housing, IT and export. There is also a likely enhancement of tax ceiling or even an exemption of tax for the small and medium manufacturers. These sectors are the hardest hit and are job-intensive sectors, so an immediate relief is the need of the hour, clarify the sources.

The governments earnings are dwindling as corporates are reporting huge losses. When translated, this means that income from indirect taxes like excise duty, corporate taxes, service tax etc are likely to be trim. Job losses are widening now and this will translate in fall of income tax earnings. Exports, which account for 20 per cent of the countrys GDP, is likely to be down by one-fifth, thus tightening the purse strings of the foreign exchange earnings.

The government, only on Friday, indicated that FDI policy will see further relaxation so as to allow foreign direct investments into the country. The same was stated by Commerce Minister Kamal Nath, when he said that relaxation of more FDI norms were likely to be announced in the interim budget.

The government is under pressure to take some measures in the interim budget, to ensure that the industry gets some relief before the process of making policies is stalled due to the code of conduct before the general elections.

The Constitution does not restrain an outgoing government from announcing tax measures in an interim budget, ahead of general elections.

Constitutionally, there is no bar, Union Home Minister P Chidambaram told reporters in response to a query on the issue. As regards the third stimulus package, the Home Minister had earlier said wait till February 16. There may be one package, there may not be one, he said.

The pressure on the government is growing, as companies across sectors are slashing jobs, according to a latest government study. As many as five lakh people were rendered jobless between October 2008 and December 2008.

Though it is an established practice that interim budgets do not announce any major relief so as not to burden next governments, yet the situation that the country is in, will require the establishment to take some measures before the new governments budget is announced.

Indicating this, Minister of State for Industry Ashwani Kumar, said, A very calibrated policy prescription is in the process of being formulated. You will see some indications in the vote-on-account.

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