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NEW DELHI: With the BJP-ruled States vehemently opposed to introduction of a unified Goods and Services Tax in lieu of indirect levies at the Centre and State level simultaneously with the Direct Taxes Code (DTC) in 2012-13, Finance Minister Pranab Mukherjee may spring a surprise in the Union budget by going ahead with a Central GST of sorts by subsuming the excise and service tax at 12 per cent. More than anything else, such a move will prove to the States that a uniform GST could be a win-win situation for revenue earnings as pointed out by the Survey as well as the PMEAC.
The net effect of the two steps taken together is likely to result in what the government is committed to and Prime Minister Manmohan Singh has assured the nation — of containing inflation, while ensuring that the growth momentum is sustained at the higher level. In particular, while the benefit in direct taxes will leave more money in the hands of the consumer despite the high inflation and thereby not lead to a slowdown in industrial growth, the sustained demand for goods will ensure a sustained flow of revenue to the Centre's kitty.
As for the current spike in oil prices, Mr. Mukherjee is expected to tinker with the customs and excise duty structure on petro-products in such a way as not to unduly burden the common man who is already bearing the brunt of high food prices.
At the same time, the streamlining of duties will also ensure that the under-recoveries of the oil marketing companies (OMCs) are contained at reasonable levels. In any case, Mr. Mukherjee has already stated that the economy has the resilience to tackle spikes in oil prices, as it has done in the past, and the government will cross the bridge when it comes to it.
The scenario, however, is different when it comes to subsidies — be it in food or fertilizers.
Having already committed to bear an increased subsidy burden on farm nutrients, the subsidy on food is also set to increase further if the recommendation of the National Advisory Council is to be implemented, even in phases.
Evidently, the government, while conceding that the delivery mechanism in most such schemes is like a sieve with their holes getting bigger each year, is banking on implementation of the unique identification data programme to target the intended beneficiaries better.
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