Sunday, February 27 2005 09:59 Hrs (IST) - World Time -

New Delhi: Armed with the reforms commended in the Economic Survey, Finance Minister P Chidambaram is widely expected to carry forward tax and expenditure reforms with moderation in a pro-poor Budget for 2005-06 tomorrow (Feb 28, 2005) keeping in mind the demands from Left parties and compulsions of coalition politics.

Cutting down subsidies, lowering customs duty to move towards Association of South East Asian Nations (ASEAN) levels, phasing out tax exemptions, widening of service tax net to rein-in on fiscal deficit are likely to be some of the priority areas but it is to be seen how far he goes on these reform agenda, official sources said.

Rural Development, Agriculture, health care and education are some of major big-ticket expenditure items and President A P J Abdul Kalam has already said the Budget will announce a major plan to rebuild rural India.

Called 'Bharat Nirman', the plan will be a time-bound business programme for building infrastructure in irrigation, roads, housing, water supply, electrification and telecom connectivity.

In a bid to move on to 7-8 per cent growth, Budget may contain measures to spur investment particularly in infrastructure sector, which has potential to attract $ 150 billion foreign direct investment in net 4-5 years.

To transform Indian manufacturing into globally competitive units, the survey said there was a strong case to revisit the issue of Foreign Direct Investment (FDI) caps in sectors like coal, mining, insurance, real-estate and retail trade.

Identifying agriculture, infrastructure and employment as areas of major public investment, the 2004-05 survey stressed the need for maintaining low interest and inflation rates and integrating the whole country towards a common market.

President Kalam has also voiced Government's commitment to keep the price line as it was harsh on the poor.

Both the Centre and States need to improve their tax administrations to have an impersonal and hassle-free regime, with low compliance cost for honest taxpayers and a high risk for the evaders, the survey said suggesting a phased rationalisation of central sales tax to remove tax on inter- State sales.

While Defence Budget is expected to go up beyond Rs 80,000 crore, the gross budgetary support for plan expenditure is likely to be over Rs 1,70,000 crore.

The Budget may also attempt to set right convoluted tax structure in sectors like pharmaceuticals, man-made fibre and telecom, which had potential for higher growth and employment generation.

Chidambaram has said that the budget would attempt to carry forward comprehensive tax reforms to make the structure "simple, easy and compliant".

There are expectations that Income tax exemption limit might be raised to Rs 1 lakh giving relief to salaried class. But at the same time some exemptions in both direct and indirect taxes might be withdrawn.

But tax sops for housing loans might continue with some modifications considering the boom in the housing, which is one of the job givers.

India Inc has pitched for reduction in corporate tax rates from the present 35 per cent to 30 per cent but it is to be seen how far he would go considering the revenue implications and the pressures from Left parties to raise corporate tax rates.

It is quite unlikely that there would be any amnesty scheme for tax evaders but some steps might be unveiled to check black money generation.

The Government would have to apportion additional Rs 26,000 crore for transfers to states with the implementation of the 12th Finance Commission recommendations.