Budget 2012: What can the aam aadmi expect?

For the aam aadmi, the fiscal deficit or changes to subsidy levels are not the reasons why he will tune in to Union Budget 2012.

No, he will tune in to find out if there any changes to the taxes he has to pay. Of late, everyone has been talking about the goods and services tax (GST) and the Direct Tax Code (DTC).

[caption id="attachment_227629" align="alignleft" width="380" caption="Changes in income tax could be announced as well. Currently, those earning salaries above Rs 1,80,000 per annum have to pay tax."][/caption]

But GST looks unlikely to be introduced from 1 April. GST cannot be imposed by the centre alone as all the states need to give up their individual rights to tax for a uniform taxation law to be introduced. As of now, negotiations between the centre and states are still on.

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What could be introduced, however, is a 'negative' list that could highlight those services that will not be subject to service tax - every other service will be taxed. That will bring more people under the tax net and increase the price of every service that faces a tax.

Changes in income tax could be announced as well. Currently, those earning salaries above Rs 1,80,000 per annum have to pay tax.

According to various reports, the government could consider realigning tax slabs in line with DTC proposals. According to the DTC, income between Rs 2,00,000 and Rs 5,00,000 per annum will be taxed at 10 percent; income between Rs 5,00,000 and Rs 10,00,000 will be taxed at 20 percent; while income above Rs 10,00,000 will be taxed at 30 percent.

Currently, income above Rs 8,00,000 per annum is taxed at 30 percent.

Some changes are expected because gross tax revenues as a proportion of GDP have fallen consistently, from 11.9 percent in 2007-08 to 9.5 percent in 2010-11.

To boost tax revenues, the government could do two things: one, increase tax rates and/or get more people under the tax bracket. For now, all we can do is hope for the best!