BS Yediyurappa may leave tax rates unchanged in new budget | Bengaluru News – Times of India

BENGALURU: Chief minister BS Yediyurappa is under pressure to fill a large revenue gap in the state’s finances, but he is unlikely to raise taxes in the forthcoming budget.
His think tank has reportedly advised him against significant tax hikes as it believes the current rates are already high and a further increase will hurt consumption levels.
The government, experts say, should instead focus on generating more revenue from non-tax sources such as asset monetisation and leverage an additional borrowing window provided by the Centre.
“There is no point in increasing tax rates, given the lower income levels and high prices. The best thing the CM can do is formulate a policy to encourage consumption, which will help the government earn more revenue without increasing the tax rates much,” said Vinod Vyasulu, a former director of the Centre for Budget and Policy Studies.
The government had expected tax revenues of more than Rs 1.1 lakh crore in 2020-21, but it is likely to miss the target by at least Rs 5,000 crore because of the economic disruption triggered by the pandemic. Revenue from commercial taxes and duties on liquor sales has improved strongly, but stamp & registration duty and motor vehicle tax collections have lagged.
“The current rates look saturated, and it would not be prudent to hike them further. Karnataka, in fact, is under pressure to decrease sales tax on petrol and diesel, as many other states have done,” said BT Manohar, who heads the taxation committee at the Federation of Karnataka Chambers of Commerce and Industries.
Karnataka has limited scope to alter taxes in the GST regime. It can propose rates for only commodities such as petroleum products and liquor, apart from property and vehicle registration.
Yediyurappa had increased the sales tax on petrol and diesel by 3 per cent (Rs 1.6 per litre) in the current year’s budget. Later, the government reaped a windfall as the rising fuel base price and central excise duty automatically pushed up the quantum of the sales tax. Despite lower fuel consumption in the state, the commercial tax department has earned an additional Rs 1,000 crore in the past three months because of the higher base price.
The additional excise duty on liquor was raised in all 18 price slabs in the 2020-21 budget, so Yediyurappa is unlikely to tinker with this rate a lot. If he decides to, the increase will be marginally, according to an official. He had reduced the stamp & registration duty on houses costing up to Rs 25 lakh from 5 per cent to 2 per cent and on units costing up to Rs 35 lakh from 5 per cent to 3 per cent. These rates are unlikely to be changed.

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Sagar Biswas

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