Finance Minister P Chidambaram will choose to increase the tax base rather than increase the burden on existing tax payers — that’s the consensus of the Street. While the FM might introduce some new taxes, market experts largely expect headline rates to remain stable. However, the super-rich may have some reason to worry, as in his bid to be seen as pro-poor, a surcharge may come for those earning above at least a crore..
Given the slower-than-expected revenue growth, the government might not cut corporate taxes but it won’t increase headline tax rates either. Excise duty levels are back to the pre-crisis levels of 2009 and will not see any cuts. Rakesh Arora of Macquarie Research expects the government to maintain status quo on service and excise tax rates. Given that the goods and services tax is likely to be rolled out soon, the FM might want to weed out concessions and concessional rates.
However, sops could be given selectively to industries under stress or needing to be encouraged. For instance, the market is expecting the tax holiday given to oil exploration companies to be extended from seven to 10 years. Power producers are also likely to get an extension of tax benefits under 80-IA beyond 2013.
Another lever the FM might use to augment receipts could be customs duty on crude, removed last year as crude prices were very volatile. Given the relative stability in oil prices, experts expect Chidambaram to bring back the five per cent tax on crude. Ambit Capital expects customs duty collections to increase 31 per cent in FY14 on the same assumption. Economists also believe the government will continue to lower income tax surcharge on companies and increase the minimum alternate tax. Given that it is a difficult year for companies, the Budget might give tax depreciation-related concessions to capital-intensive projects.
For individuals, the FM could increase the exemption limits. Super-rich individuals or the top one per cent of the taxpayer base earning over Rs 20 lakh should be prepared to pay a surcharge of 10 per cent in FY14. Ambit’s Ritika Mankar Mukherjee says this would help the government meet the twin goals of tax augmentation and also maintain a pro-poor stance. With this pro-poor theme, higher taxes might be imposed on luxury items, like cars. To tide over tough times, temporary increases in capital gains or dividend tax, along with an inheritance tax, are disticnt possibilities.
