INDIA will soon revert to 8-9 percent growth, says the president. Meantime, January’s factory output data has posted a surprise uptick, doubts about its accuracy notwithstanding. But, with budget 2012-13 coming up, ordinary people and companies want more than statistical feel-good. They need tangible benefits like more money in their pockets to save, spend or invest - more so given high inflation in recent times. The budget ought to increase personal income tax brackets, raising the minimum exemption limit substantially.
Keeping taxpayers happy will buoy savings, which have dipped worryingly.
It’ll also encourage consumption, in turn boosting consumer goods and services.
With India facing slowdown, tax relief for industry is expected whether by lowering of corporate tax or removal of surcharge and education cess.
The link between high tax rates and fatter tax collections is a myth. With rationalisation of exemptions as its fiscal foil to keeping taxes low, a tax regime that’s friendly to consumers and business has huge benefits.
Greater demand spurs manufacturing and services, which in turn creates jobs and expands purchasing power. Boosted economic activity and higher compliance mean greater tax revenue.
What the budget must do is provide clarity on the timeline for comprehensive tax reforms such as GST and DTC. On the indirect taxes front, an excise duty hike to pre-2009 levels is expected though a case exists for holding off till better times. A negative list for service tax to widen its base is a smart idea, since services account for a mere 8.7 percent of central taxes despite contributing massively to national income.
Finally, while it’s true the government is in poor financial shape, it’ll do better using reforms instead of taxation to mobilise resources.
Tinkering with taxes won’t help a faltering economy. Trimming wasteful subsidies, fast-tracking PSU stake sale and incentivising private investment will.