No big taxation changes expected in budget

With the exercise to formulate the budget 2011-12 beginning in right earnest at North Block, the indications at this stage are that one should not expect big-ticket taxation changes on 28 February. What could happen is a new focus to raise taxes from international transactions in some ways, say reports.

Sources in the revenue department told CNBC-TV18 there is limited room to tinker with direct and indirect tax rates in the next financial year. ''It is impossible to deviate much from the position stated (on direct tax rates as well as goods and services tax rates) in the direct tax code by the finance ministry,'' a source said.

The finance ministry had indicated a corporate tax rate of 30 per cent and an exemption limit of Rs2 lakh for personal income tax. On the proposed general service tax (GST),a 10 per cent rate on goods and an 8 per cent rate on services has been suggested.

Sources in the finance ministry say that with these positions they have little room to manoeuvre tax rates, and they are likely to remain at these levels. However duties on certain commodities which have seen price rise could be lowered. This in fact is a reason for concern for the finance ministry because it is targeting a 4.8 per cent fiscal deficit.

The tax-GDP ratio may also take a beating because of high inflation - non-tax revenues such as the 3G spectrum sale from which the government reaped windfall gains will not be there in the next fiscal, since nominal GDP will be high.

So the government is concerned about how its tax revenues will grow and the answer to that may lie with international taxation - that's an area where the government sees growth, especially emboldened by the tax department winning the Vodafone case.
So policy changes in that arena may be expected in the budget.