Fiscal Deficit Of India Would Grew - Feb 19, 2009

The fiscal deficit of India would grew to about 7.8 per cent if off-budget items like bonds issued to oil companies are included, said Planning Commission Deputy Chairman Montek Singh Ahluwalia.

The Budget shows that the number is going to be 6 per cent as a fiscal deficit and this does not include about 1.7 per cent, which is the bonds etc, which are not counted, Ahluwalia said in an interview to private television channel. He also said that the year 2008-09, we started off with fiscal deficit which we thought should be 2.5 percent and then another half a percent for pay commission to be 3 per cent, he said. However, the government has been reacting to that crisis through multiple channels and a lot of action has been taken.

Budget set to unveil GST road map

NEW DELHI: The Budget is set to unveil the road map for the most critical tax reform that the UPA has committed itself to—the unified goods & services tax (GST). The road map is based on the recommendations made by the empowered committee of state finance ministers.

The committee has submitted its report to the Union finance ministry, suggesting a dual GST structure—a single rate for services and two rates for goods, one at the Centre and other at states. GST, which is proposed to kick-in from April 1, 2010, will integrate most of the indirect taxes on goods & services at the state and the central level.
The empowered committee’s report is largely based on the recommendations made in November 2006 by the joint working group (JWG) on GST.

The broad contours of the model have been agreed upon and given to the Centre. However, a revenue-neutral rate—the rate at which states don’t lose current revenue as they transit to the new system—is yet to be worked out, a source said.

The JWG report had suggested that states should tax intra-state services while inter-state services should remain with the Centre. Petroleum products, including crude, high-speed diesel and petrol, may remain outside the ambit of GST. At present, these products are excluded from the value-added tax regime and state governments levy sales tax on them that varies from 25% to 33%. The report had also mooted elimination of the area-based and sectoral excise duty exemptions that are being given by the Centre.

While some key elements have been agreed upon, the details of the model will be finalised after discussions with the states. Some state governments have also sought a compensation package to move to the GST regime. But this is likely to be resisted by the Centre. A draft white paper would be brought out after discussions with the industry and trade associations after finalisation of all the details of the model.

The fact that the UPA government is serious about ushering in the GST regime is also reflected in the terms of reference of the 13th Finance Commission. The commission, set up recently, will factor in a GST framework while making recommendations for the transfer of central tax revenues to states. The commission is expected to give its report by 2009 end.

Budget 2008 Likely To Be Pro Common Man

Personal and corporate income tax cuts, excise duty relief and simplification of taxes are expected in the Union Budget for 2008-09, the last full-fledged budget before the next general elections. Finance Minister P Chidambaram, who will be presenting his seventh budget on Friday in Parliament, has a tough exercise on hand of balancing conflicting interests in coming out with a budget for the ''aam aadmi'' (common man).Social sector projects.He is expected to announce massive funds for social sector projects like National Rural Employment Guarantee (NREG), Sarva Shiksha Abhiyan, rural health and power sectors and a debt-relief package for farmers to share the benefits of high growth especially in view of the coming Lok Sabha elections by this year end or early next year.The Indian middle-class and the industry, which still remember his dream budget of 1997-98, are expecting a bonanza from the Finance Minister in terms of relief in income tax and excise duties and simplification of other taxes.

Government servants are expecting an announcement on implementation of the Sixth Pay Commission.Sources say that the Finance Minister is unlikely to introduce any new tax in the budget for 2008-09 although some controversial taxes like the banking cash transaction tax may be reviewed, adding that with buoyancy in revenue collections he is capable of working out packages for every constituency.Apart from meeting the fiscal and revenue deficit targets, the budget is likely to aim at sustaining 9 per cent GDP growth, while containing politically sensitive inflation rate around four per cent.

Budget Watch: Rejig In Duty Structure On Cards

NEW DELHI: Finance minister P Chidambaram may not announce any change in peak customs duty in the forthcoming Budget, but a rejig in duty structure to correct the inverted tax structure in certain sectors may be on the cards.

This is primarily to give some relief to certain manufacturing sectors like colour television, tyre, certain chemicals and electric fans. These sectors have also been affected by the rapid rise in the value of the rupee, which has taken the sheen off exports.

Inverted duty structure implies a tariff structure where raw material attracts higher duty than the finished product. This structure renders manufacturing process uncompetitive and impacts the domestic industry adversely.

The government is facing pressure from industry to correct anomalies in the tariff structure. Sources said a correction may be carried out in some sectors, especially where the impact is maximum.

For example, in the case of tyres, while natural rubber imports attract a basic customs duty of 70%, tyre imports attract a significantly lower duty of 10%. The basic customs duty on electric fan is 10% and that on stampings which are used for its manufacture is also 10%.

In the case of picture tubes, its main input, glass, attracts a 10% duty, which is same as the duty on the finished product, the television. Ceramic products attract lower duties at 5.375% while raw materials like abrasives, dyes and cutting tools attract 10%. The government had in 2006 set up a committee under Anwar-ul Hoda to examine the inverted duty structure. Although the committee’s report came in well before the last Budget, it was not implemented.

Sources said the general structure can be tinkered with only if an inverted duty is a product of the existing duty structure and not an outcome of concessions offered in bilateral agreements. At present, the peak customs duty is 10% and if the government adheres to the voluntary reduction to align it with Asean levels, it will come down to 7.5%.