Budget likely to increase excise rates, expand tax base

The government is looking at increasing excise duty or tax on manufactured items in a bid to cut budget deficit and consolidate its fiscal goals, at a time when economic growth has dipped to 6.1 per cent.

The government's fiscal deficit for fiscal 2012-13 is likely to be around 5.1-5.2 per cent against the budget estimates of 4.6 per cent projected earlier.

Official sources said the budget is expected to find some measures towards fiscal consolidation, which could be either spending cuts or revenue raising.

Government's accumulated deficit, including the stimulus spend during the global economic slowdown that followed the 2008 financial crisis, has now left the government with no option other than raising tax rates or expanding the tax base.

The government's stimulus spend is estimated to be about one per cent of the country's GDP and this could easily push government deficit to 5.6 per cent or more.

But, with the draft direct tax policy suggesting an increase in the taxable income level and a consequent reduction in the income tax base, the government would have to lean back on indirect taxes and an expansion of the number of taxable items to rein in deficit if not increase revenues.