The Finance Minister, Mr Pranab Mukherjee, has clearly shifted focus to garnering additional revenues from indirect taxes rather than direct taxes — a move that is seen as somewhat regressive in many quarters.

The Budget's revenue projections also reaffirm the reversal of the overall post-reform trend of a steady increase in the contribution of direct taxes to the Centre's revenue kitty. The contribution of direct taxes had grown from less than a fifth in 1990-91 to almost 59 per cent in 2010-11. Since then there has been steady decline and in 2012-13, this share is budgeted at 52.39 per cent of total revenues.

The emphasis on indirect taxes for additional revenue mop up is perceptible, given that Mr Mukherjee expects the indirect tax proposals to result in a net revenue gain of Rs 45,940 crore during next financial year.

Direct tax proposals are likely to result in loss of Rs 4,500 crore, said Mr Mukherjee in his Budget speech.

The increased reliance on indirect taxes is seen as regressive as taxes on goods are paid by the rich and poor alike, while taxes on income and corporate profits are viewed as more egalitarian. Taxing individuals and corporates rather than production and trade would result in less stifling of economic activity, according to economists.

Besides enhancing the general cenvat rate by two percentage points to 12 per cent, the service tax rate has also been hiked to 12 per cent from 10 per cent. With services accounting for about 55 per cent of India's GDP, there is now a concerted attempt by policymakers to “shift gears and accelerate ahead” in terms of mopping up service tax revenues.

For the first time ever, the Centre is looking to mobilise over Rs 1 lakh crore from service tax with the Budget estimate for 2012-13 pegged at Rs 1,24,000 crore.

Targets missed

Meanwhile, the Centre will this fiscal miss the budget targets for direct taxes and also on the excise duty front, Budget documents showed. As against the budgeted gross tax revenue of Rs 9,32,440 crore for 2011-12, the revised estimate has been pegged at Rs 9,01,664 crore.

While the shortfall in corporate taxes is expected to be little over Rs 30,000 crore, there will only be marginal shortfall in personal income tax. The Centre will once again miss the Budget target on excise duty, mainly due to industrial slowdown in the recent months.

For 2012-13, the Centre is targeting a 15.5 per cent increase in gross tax revenues. It had targeted an 18.5 per cent increase in gross tax revenue for 2011-12. This is a clear pointer that the Centre has lowered its ambitions for 2012-13 in the wake of general slowdown in the economy and uncertain external environment, especially in Europe.

> krsrivats@thehindu.co.in

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