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Indirect tax tweak on menu

P. Chidambaram in New Delhi on Monday. Picture by Rajesh Kumar

New Delhi, Feb. 3: Finance minister P. Chidambaram is likely to style his interim budget for 2014-15 on Jaswant Singh’s vote-on-account in 2004, with changes in indirect taxes, which he is allowed to make, on the agenda.

The interim budget can make indirect tax changes, which do not require any changes in the law but mere notifications. In fact, the government has the right to change customs and excise duties any time to make goods cheaper, discourage import of products to protect the domestic industry and discourage the export of a product, which is scarce at home such as onions or iron ore.

However, the government by convention cannot introduce new taxes, which require changes in laws or the income tax act.

“We can make any proposal short of amending any law. We cannot propose amendments to the income tax act, customs act or the excise act. But any proposal short of amending a law can be made. We can also outline a vision for the future,” Chidambaram told reporters today.

Among the possible changes are a cut in the duty on gold imports, which has the backing of UPA chairperson Sonia Gandhi. The steel industry has also sought a raise in the duty on iron ore exports, while the pig iron industry wants the government to withdraw a recently imposed 5 per cent increase in tax on the export of iron pellets. Similarly, the textiles and automobile industries, hit by a fall in demand, have been seeking tax breaks.

The government is likely to announce larger spending on populist schemes such as employment guarantee, food security and on minority welfare.

The interim budget comprises two parts — a vote-on-account for spending and the other notifications for continuing taxes or making changes in existing excise or customs rates.

Jaswant Singh had tweaked duties just ahead of the vote-on-account in 2004, which resulted in a give-away of Rs 2,500-3000 crore in that fiscal. If continued for the whole year, this could have resulted in give-aways, or stimulus, worth Rs 10,000 crore.

Chidambaram today said that whatever changes were required to be made in excise or service tax rates without an amendment to the law “are being made and will be made”.

 
 
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