MUMBAI, FEBRUARY 20: The country's first budget of this century is expected to focus heavily on fiscal consolidation measures, including initiation of Fiscal Responsibility Act (FRA). A Crisil report on expectations from the budget, said the budget is also expected to rationalise the tax structure (reduce the number of ad valorem rates 3 to 1) in order to increase tax revenues on account of better compliance."This rationalisation is expected to be a prelude to a comprehensive value added tax (VAT) structure," Crisil said. The FRA in turn would involve generation of revenue surpluses to reduce high-cost debt."The current 3 per cent effective surcharge on income-tax is likely to continue. However, a further widening of the tax base would be sought through selective taxation of the services sector and a permanent account number (PAN) scheme is likely to be introduced for agricultural sector for income above a certain threshold level to assess the potential of taxing this sector," the report said.The budget is also likely to set higher targets for PSU divestment. As an accounting policy, however, receipts may not be accounted for within the budget in an effort to implement the FRA, Crisil said."The removal of PSU disinvestment amounts from the budget would help reduce variability of the fiscal deficit consequent to meeting such targets," the report said.In order to provide a boost to industrial growth and provide greater flow of funds to the housing sector, the financial and tax incentives to small scale industries may be enhanced and mutual funds are likely to be allowed to securitise debt of the housing finance companies, Crisil said."The uniform customs duty surcharge of 10 per cent is likely to continue. Commodities that would be removed from the restricted list to OGL list as per agreements with WTO may receive customs protection to provide a level-playing field to industries to face competition and to maintain revenue generation capability," the report said.Although no specific incentive is expected for the foreign institutional investors in the budget, a clear signal from the Government on issues like control of fiscal deficit and disinvestment in PSUs would result in an increase in the FII inflows into the country.The budget is also expected to ensure availability of long-term private sector funds, remove procedural bottlenecks, and bring about structural reforms in the infrastructure sector."The expected slippage in the fiscal deficit for 1999-2000 is likely to be around Rs 17,800 crore (over the budget figure of Rs 79,955 crore) on account of shortfalls in tax revenues and overruns in expenditures. Even though customs revenues are likely to meet targets, shortfalls are likely in corporate tax, income tax and excise revenues, leading to a shortage in the net tax revenues to the extent of Rs 4600 crore. Expenditures overruns are also estimated for 1999-2000 on account of Kargil, the natural calamities in Orissa and the elections. The overshoot on Non-plan expenditure is estimated at around Rs 7000 crore. However, the government had indicated that Plan expenditure would be pruned by 10 per cent," the Crisil report said.Crisil, however, expects plan expenditure to be lower by only around 2 per cent compared to budget targets.
