The situation prevailing before the next 2010-11 Budget is considerably different from the earlier one on two important respects. First ,the last time the concern was about fighting the recession but now the concern is also about fighting the fiscal deficit without injuring the fledgling recovery.

Secondly,it has now been known officially that there will be a dual GST and even the character of it has also been indicated. Accordingly the suggestions for this Budget should be on these two counts mainly, not so much on the procedural part as everything will change soon enough, when the GST comes.

Coming to the first issue,   scare for the fiscal deficit will determine if the Finance Minister withdraws the boost that he has given in terms of reducing the rates of tax in excise, service tax and customs.

Apart from the general rate, there were many exemptions given and the net impact has been a lower collection of indirect tax revenue.

So the net impact has been much greater than what the tariff rates indicate. The result has been definitely a boost to manufacturing sector which  has decidedly come out of the recession but the trend is still shaky.

While deficit finance limit is important, there should not be a fiscal scare also. Short term budget deficits are not so problematic so long as there is growth which is substantially positive in the case of India.

Contrary to what some economists think , the large deficit what the Indian Government is running now is not the result of runaway spending growth, Instead most of the deficit was caused by the ongoing economic crisis which has resulted in a plunge in tax receipts, which are temporary measures to stimulate growth and support employment.

There is a strong and correct view of economists that running big deficits on the face of worst economic slump is actually the right thing to do. So in the next Budget the best policy will be to continue with the fiscal boost that was given last time and it  may continue till the time the GST comes probably in April 2011 when all rates will change comprehensively.

On the second issue about making prepartion for the coming GST, there needs to be a complete change in the tariff structure of service tax now. The government has been proceeding on the basis of selective approach , that is, introducing a few services every year. Over a period of nearly 15 years since 1994 when service tax was first introduced, more than hundred services have come under the tax net.

There are not too many services left which will give substantial revenue.

The only exception is transport services.  Therefore, a time has come to consolidate whatever taxes have been imposed into a viable and more workable system where it is not necessary to issue circulars after circulars to clarify matters.

Comprehensive service tax will put things into a more theoretical groove and pave the way for introducing GST next year. Not introducing a comprehensive service tax in this Budget will be  a case of missed opportunity to prepare for the massive change that GST will usher in.

At the same time a comprehensive goods tax (excise with Cenvat)  should be introduced in this Budget.

Now there is distinction between raw materials and capital goods for the purpose of Cenvat and rigidity of input tax credit between goods and services.

They should be all abolished so that for one year the preparation can continue for the ultimate transition to merger between goods and services.     

This Budget will be an excellent opportunity for doing away with the law of denying refunds on the ground of unjust enrichment.

Since its introduction it has been one of the most litigated laws and has achieved nothing by refusal of refunds to assessees on flimsy grounds.

This has also contributed to unfair means by assessees since they know that this law practically debars them from getting refund without protracted litigation.

The simplification that GST will bring should not be marred by the complication of denying refund for so-called unjust enrichment.

With these transitional measures in this Budget, the changeover to GST next year should be more smooth.