Corporate, income tax rates to stay

Companies and individuals fearing higher tax rates in view of a high fiscal deficit may rest easy as the forthcoming budget is unlikely to give them taxing times.

With government deficits hovering around record levels and inflation nearing double-digits at home, and most countries
in the world feeling the slowdown pinch, investments are drying up. To improve sentiments, the government is unlikely to tamper with corporate and individual tax rates in the budget, government sources said.

Finance minister P Chidambaram has already underlined the need to follow a tax-friendly regime and a non-adversarial tax administration to raise the tax-to-GDP (gross domestic product) ratio in the country, which is currently around 10% .

A number of think-tanks and policy advisors have proposed that the rich should be taxed more, but the government is not keen on this approach.

"The finance ministry at this point is not going to try new structures especially in taxes as the focus would be to draw investment, even though there have been several proposals suggesting that certain tax rates need to be revised upward in order to boost revenues," an official source told HT on  condition of anonymity.

The government has set a target of reducing fiscal deficit to 4.8% of GDP by 2014. The current year's target is 5.3%. According to the roadmap, fiscal deficit would be brought down to 3% by 2016-17.

The government is looking at several ways to bring down expenditure while boosting revenues. The finance ministry is also likely to set a higher disinvestment target of over Rs. 40,000 crore for 2013-14 against Rs. 30,000 crore set for the fiscal year 2012-13.

Global credit rating agency Moody's has maintained its sovereign rating for India at Baa3-— the lowest investment-grade rating — with a stable outlook.

Banking outlook negative on higher NPAs: Moody's

Global ratings agency Moody's today said it has a "negative" outlook on the country's banking system due to concerns over asset quality and the high interest rates.   "In India, impaired loans are yet to peak among public sector banks," Moody's said in its Asia-Pacific
Banking Outlook.

The agency further said though the government is "likely to remain supportive", options for the Reserve Bank to slash lending rates are limited due to high inflation and the "modest fiscal capacity".

RBI has not given into the growing pressures to ease its elevated interest rate, which is one of the highest in the world and the highest amongst the BRIC nations, citing the high inflation and the government's inability to reign-in the fiscal deficit at desired levels.

However, the Moody's report said interest rates are likely to fall during 2013 but still they will remain higher than the rest of Asia.

Noting that 94% of the banks it rates in Asia carry stable outlooks on their deposit ratings, Moody's said the negative outlook on specific banks mostly relate to India.

On the compliance with the stricter Basel-III regulation, which require higher capital reserves, it said that most of the Asian banks comply with the requirements but the pressure to compete with peers from the Western countries facing delays in execution may have forced countries like India to delay implementation.

The Reserve Bank had delayed the implementation of Basel III by three months to April 2013, from January 2013 earlier.

The BSE's banking index Bankex slipped 0.21% to 14,520 points as against the 0.31% gains on the Sensex.