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Jan 31, 2013, 05.58 PM IST | Source: CNBC-TV18

New direct tax code, hike in indirect taxes likely: Sources

Parthasarathi Shome, key member of the Finance Minister's budget team today hinted at a hike in indirect tax rates to 14% even as the Finance Ministry works on a new direct taxes code.

Parthasarathi Shome, key member of the Finance Minister's budget team today hinted at a hike in indirect tax rates to 14% even as the Finance Ministry works on a new direct taxes code. Aakansha Sethi reports on the expectations of the Union Budget 2013.

Sources in the Finance Ministry said that they are discussing a new direct taxes code. This could be a return to pre 2008 indirect tax level. Service tax as well as excise too could be hiked to 14 percent.

Now, while this is going to add to the inflation and hence is a cause of concern, the key theme for the forthcoming Budget is going to be fiscal consolidation and this could add almost up to Rs 8000-10000 crore.

Infact, Shome said that there was no definitive analysis of whether the fiscal loosening had actually helped growth.

Parthasarathi Shome, advisor to finance minister said, "We had a golden period of fiscal consolidation in about 2003-2004 to 2007-2008 when we consistently followed Fiscal Responsibility and Budget Management (FRBM). If you do it on a consistent basis, you can see one to six years of consolidation going on. Then, it is easier to follow FRBM. However, at this stage, what is important to see is that kind of fiscal loosening that we saw in 2008-2009. We have given the argument that it was because of the global crisis, but I really haven't seen any definitive analysis proving that that kind of loosening was essential."

Shome added that they are very closely working on the direct tax code and revising it according to the suggestions of the Standing Committee and their original thought.

Now, the revised Direct Taxes Code (DTC) was very different from what Chidambaram had originally envisioned. So, it is likely to see the inclusion of the Standing Committee's recommendations and the Finance Ministry is keen to implement it from 2014. So, one can expect an announcement on DTC on the timeframe in the Budget as well.

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