Finance Minister Arun Jaitley is unlikely to go in for any major cut in key tax rates in the Union Budget 2015-16.
With little fiscal space and plans to push up capital expenditure, the government is unlikely to go in for any major cut in key tax rates in the Union Budget 2015-16 that will be presented later this month.
But while finance minister Arun Jaitley is unlikely to reduce the corporate tax rates or do away with the tax on the super rich, he is likely to consider some sectoral tax sops to to boost manufacturing activity.
But clearly, the need to rev up revenue collections will be the foremost priority. Already, laggard economic growth and overambitious tax targets have meant that the Centre has been unable to meet its direct tax collection targets for 2013-14 — a problem which is likely to be repeated again this fiscal.
The Mid-Year Economic Analysis had pointed out that tax receipts were overestimated by Rs 1.05 lakh crore in 2014-15 partly on hopes of a revival in economic growth.
“The Budget assumed nominal GDP growth of 13.4 per cent and a tax buoyancy (relative to nominal GDP) of 1.5,” the report noted, adding that, however, with significant inflation moderation, nominal GDP growth will be about 10.6 per cent.
This is also evident from data from the Controller General of Accounts that revealed that tax revenues stood at a mere Rs 5.45 lakh crore or 55.8 per cent of the total target of Rs 9.77 lakh crore from tax revenues in the current fiscal.
“A major cut in tax rates is unlikely in the Union Budget , however to facilitate manufacturing, the Centre could consider addressing some anomalies such as the inverted duty structure on indirect taxes, restricting customs duty payments on SEZ clearances for domestic markets to be no more than duty forgone, lower withholding tax on technology imports and safe harbour for contract and toll manufacturing,” said Rahul Garg, leader, direct tax, PwC India, adding that a boost to the SME sector can also be given to promote manufacturing.
Much of the tax incentives that are likely to be handed out in the Union Budget would be focussed around the ‘Make in India’ campaign and sectors such as micro, small and medium enterprises, IT and electronics are expected to be the key beneficiaries as the government tries to boost local manufacturing.
The commerce and industry ministry has also sought a correction in the inverted duty structure that taxes finished goods at lower rates than the raw material, with the aim to boost domestic manufacturing.
Meanwhile, others such as auto makers, too, are hoping for a renewed stimulus that would help boost sales and improve profits. Their demand has also been backed by Anant Geete, minister of heavy industries and public enterprises who has sought restoration of excise duty sops for automakers from the finance ministry, which were rolled back in the new year. To boost car sales, excise duty cuts were announced in the interim budget last year and continued till December 31 last year.