Cars may become cheaper,but services of doctors and lawyers are likely to get more expensive with Finance Minister P Chidambaram widely expected to remove special additional excise duty on automobiles and apply it on professional medical and legal services, as part of efforts to expand the service tax net in the coming Budget.
The Budget may not provide any relief to salaried class by way of raising income tax exemption limits or lowering of tax rates but may allow investments in mutual funds and corporate bonds as well for claiming tax exemption for investment up to Rs 1 lakh (Rs 100,000) in savings, official sources told PTI.
Chidambaram has indicated he would move towards single rate Cenvat rate of 16 per cent excise duty and now only two items -- aerated soft drinks and cars -- attract the additional 8 per cent excise duty.
There was demand last year itself for auto industry for removal of this eight per cent and the finance minister had promised in the last Budget that he would consider it when the situation improves.
Corporate tax rates could remain untouched at the present level but bowing to the pressures from apex chambers, the controversial Fringe Benefit Tax would be simplified to remove some of the glitches. Prime Minister Manmohan Singh has made it clear, taxes should be 'moderate and not confiscatory.'
With booming auto industry and sizeable excise revenue from the auto sector, it is quite likely that the 8 per cent additional duty would be removed, the sources said.
More services would be brought into the net, with service tax doing well this year amid expectations that the revenue collections from this indirect tax would far exceed the Budget estimate of Rs 17,500 crore (Rs 175 billion).
Presently, the 10.2 per cent service tax is levied on 81 items, they said, adding that the items that could come under this tax net included multiplexes, fashion designers, doctors, lawyers healthcare facilities and trade fairs. But Chidambaram has ruled out any negative list for service tax and as and when more services are identified, they would be brought into the net.
Keeping in line with the promise, customs duty would be brought down further to align it with the ASEAN level, the sources said, indicating that the peak customs duty which was brought down to 15 per cent last year could be reduced by 2-3 per cent this year.
As part of the tax reforms, more tax exemptions both in direct and indirect taxes would go. But the scope is limited as rationalisation of exemptions has been on for the last 4-5 years.
The tax reforms this year would therefore focus more on toning up tax administration to plug loopholes of tax evasion and avoidance, the sources said.
Sources said efforts were underway to work out a new scheme to replace the popular duty entitlement passbook scheme (DEPB) to make it World Trade Organisation compatible.
Though there is some tug of war between the revenue department and the commerce ministry over some of the tax incentives to exporters, they are expected to continue particularly with exports doing well this year and that duty reimbursement to exports is provided all over the world.
There is also a lot of opposition to the bank cash transaction tax introduced last year as a measure to check black money generation.
Chidambaram has already made it clear that the tax has been very useful in keeping a tab on black money as well as money-laundering. He has promised to give details of these in the Budget.
Though there is demand by Left parties for raising the rates of securities transaction tax, it is unlikely they would be considered in the budget even though the government has collected a tidy sum from the tax introduced in 2004-05.
The Left parties have also demanded introducing long-term capital gains tax and inheritance tax to widen the tax net. but the sources said it was not clear if the finance minister would consider these suggestions.