Incentives may not come in form of tax sops.
Budget 2011-12 is likely to announce a slew of measures for the priority sector, but the incentives may not come in the form of tax sops. Agriculture, infrastructure and education would be the key focus areas in the upcoming Budget and might see a higher spending from the government.
According to finance ministry officials, relief to these sectors would not be provided in the form of tax rebates because “tax concessions are not the solution to every problem” and that the idea is to have “minimum exemptions while widening the tax base”. To support agricultural growth, the government may announce a significant increase in the agriculture credit target for banks. In the previous Budget (2010-11), the target was raised to Rs 3,75,000 crore from Rs 3,25,000 crore.
The industry has urged the finance ministry to encourage private sector participation in agriculture, infrastructure and industrial sectors through various tax measures, including tax exemption on expenses incurred on new technology and inputs in agriculture, tax holiday extension to third-party infrastructure projects, and tax exemption on interest and long-term capital gains of infrastructure companies.
Contrary to the industry’s demand for tax concessions, the finance ministry plans to increase its tax base by pruning its excise duty exemption list, and bringing more businesses and services under the tax net. As the average inflation for the current year is expected to be around nine per cent, it is worried about its tax to GDP (gross domestic product) ratio and does not have much room to reduce taxes or tax rates.
Suresh Tendulkar, former chairman of the Prime Minister’s Economic Advisory Council, said further tax sops for strengthening the industry were not required as “the economy had come out of crisis and the rewinding process started last year itself”. He added the key challenge before the government in the upcoming Budget would be inflation management without hurting growth.
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Among the non-tax measures, the industry has suggested that the government should increase its budget outlay and grant infrastructure status to industries such as education, healthcare, telecom, internet and agriculture.
It also suggested definition of infrastructure as applicable under various incentive schemes should be extended to rural infrastructure. The agriculture ministry has also suggested an interest rate of four per cent from the current five per cent for farmers who repay their loans on time. Other farmers get credit at a rate of seven per cent.
A finance ministry official, said, “We have to evaluate the proposal. The issue is that some states also give various concessions and all that taken together might result in zero interest rate for the borrower.