Income, excise and service taxes may be raised in budget 2012

Taxes are set to rise next year. Both in terms of excise on goods and personal income-tax.

Even as inflation is burning a hole in the pocket, the finance ministry is mulling taking a bite out of your salary.

But you should have seen it coming. In September, former Finance Minister P Chidambaram called for a Buffett tax on the rich. The Prime Minister’s Economic Advisory Council is now pushing for the same.

On Thursday, PMEAC Chairman C Rangarajan told an economic editors’ conference that the excise duty cuts announced during the 2008-09 post-Lehman recession need to be restored, reports The Hindu.

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[caption id=“attachment_113847” align=“alignleft” width=“380” caption=“You should expect the money in your pocket to come down next year, unless your employer is extra generous - which he is unlikely to be, since the government may ambush him, too. Thirteen of Clubs/Flickr”]  [/caption]

In February 2010, the finance ministry had raised excise rates partially, but did not roll back the Lehman stimulus entirely. Said Rangarajan: “I would suggest that we really need to raise the excise rates to the level at which they were prior to the crisis. But during the year, I do not know whether it is possible or wise, because normally, we don’t raise excise duty within the year… Going ahead next year (the 2012-13 budget) it is something that one can do.”

This could mean a 2 percent rise in excise duties and service taxes in February 2012.

But that won’t be all. In an interview to Business Standard, Rangarajan’s colleague in the PMEAC, M Govinda Rao, who is also Director of the National Institute of Public Finance and Policy (NIPFP), mused loudly about the need to raise the top tax rate for individuals to 40 percent.

He told the newspaper: “Now you have a marginal tax rate of 30 percent for incomes above Rs 8 lakh. Even Europe is thinking of levying higher income taxes for higher income groups. So after Rs 15 lakh of income, it may be worthwhile having a tax rate of 40 percent.”

Incomes already dented by double-digit inflation will now take a further hit through a higher tax rate for the relatively better off.

So you should expect the money in your pocket to come down next year, unless your employer is extra generous - which he is unlikely to be, since the government may ambush him, too. And a rise in excise and service taxes will push up inflation. So expect, a double bite.

You have the UPA’s profligate spending to thank for this. As Govinda Rao pointed out, between them the Right to Education Act, the Food Security Bill and the proposed plan to universalise health services next year will cost another 3.5 percent of GDP. Plus, there is a need to reduce the fiscal deficit to 3 percent by 2014-15.

In short, there is need for extra resources amounting to 5 percent of GDP in the next two to three years. This means over Rs 5,00,000 crore would have to be raised through higher taxes and/or expenditure cuts, not to speak of increases in energy tariffs.

So, do cancel that vacation that trip to Europe next May. Pranab-da could be planning to hit you on the head with a cosh and run off with your wallet.