Sunday, February 6 2005 12:22 Hrs (IST) - World Time -

New Delhi: The 2005-06 Union Budget will have a "good, hard look" at all tax exemptions barring those for housing and contain sops to spur investment in job-providing industry but there will be no amnesty scheme to unearth black money.

The budget, now in advanced stage of preparation, will also have measures to encourage savings to push up public investment but have adequate safeguards to prevent the sops being used as "tax shelter", authoritative sources told reporters.

In line with the promise made by both Prime Minister Manmohan Singh and Finance Minister P Chidambaram to carry forward comprehensive tax reforms, the budget will revisit both direct and indirect tax structure to make it "simple, easy and compliant" besides being growth-friendly, the sources said.

The thrust of the tax reforms would be to remove the "distortions" in the tax structure and look at the convoluted duty structure in employment-generating and growth-oriented sectors of petroleum, man-made fabrics, sugar and pharma.

Even though the Left parties have demanded a hike in corporate tax rates besides reintroduction of dividend and turnover taxes to garner additional revenue for social sector schemes, the budget might not have harsh tax measures on the corporates.

While formulating policies on corporate taxes, the sources said the Government will have to keep in mind the fact that industry is the main job giver and needed to be helped. At the same time it will have to mop up tax revenue for development.

Trade and industry have already asked Government to consider reduction in corporate tax rates to 30 per cent from the present 35 per cent.

Scotching the speculation about the budget coming out with tax amnesty scheme to tap black money, the sources made it clear there was no scope for it.

Nor could there be schemes without tax amnesty to tap black money for raising revenue for social sector investments. "Tell us one such scheme," the sources said, adding the Common Minimum Programme (CMP) has only talked of measures to bring out unaccounted money and does not speak of amnesty schemes.

As outlined in the CMP, the big-ticket items of expenditure in the budget would be rural employment guarantee scheme, food for work programme, irrigation, health care and education.

Also as promised in the CMP, public sector investments in infrastructure sector would be stepped up in the budget especially in power, roads, irrigation and ports.

On exemptions, the sources said there will be "a good, hard look" at them because there cannot be a claim to permanent exemptions. Some exemptions will have to continue in the interest of the growth of the booming housing sector.

While there is need for some exemptions, the sources said whenever an exemption is granted, it should be accompanied by a "sunset clause" so that it is not permanent.

The tax-GDP ratio has improved this year and the budget would attempt to raise tax-GDP ratio by at least one per cent in 2005-06 which has to be sustained in the next 2-3 years.

As promised in the Common Minimum Programme, the sources said the tax rates will have to be "moderate and stable". The attempt would be to ensure that the rates remain the same in the next four to five years.

On revenue collections, the sources said new collections have been mixed but still considering the fact that the Government took a "major hit" on customs and excise to mitigate inflation on account of surging global crude oil prices.

The banking and petroleum sectors recorded lower profits but some others did reasonably well. What is lost in one is made good in another, the sources said.

On the expenditure side, the sources said the thrust is "very clear". The big-ticket items in the budget will be Sarva Siksha Abhiyan, food for work, rural employment guarantee, health care and irrigation.

On the investment side, the sources said, "we are clearly pushing ahead with public sector investments in power, irrigation, roads and ports.