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Pranab unlikely to fiddle with income tax rates
June, 18th 2009

Apprehensions that finance minister Pranab Mukherjee may touch the tax payer to help bankroll UPA's promised surge in welfare and infrastructure programmes may not come to pass with government disinclined to tinker with direct tax rates and income-tax rates.

The contours of UPA 2's first budget are still taking shape but there have been three rounds of discussions between Mukherjee and PM Manmohan Singh and the overall thrust is becoming visible. The thinking is that a tax shock may not be the best way to find resources for the government's spending plans as it could dampen consumption at a time when demand is still sluggish.

There is a political deterrent as well. The thinking seems to be that a tax hike may not go down well at a time when there is a sense of expectation that UPA 2's first budget will have a feel-good touch.

However, the budget may not be altogether painless with the possibility of cesses being increased like a further Rs 1 on every litre of petrol and diesel, or an increase in the education levy. These would be sugar-coated by being presented as development-friendly impositions while the government skirts around the politically sensitive area of personal taxes.

There is a possibility of some changes in areas like service taxes which impact consumer activity but will help government make up a part of what it has given away by way of three stimulus packages since late last year.

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