In a desperate bid to bridge the yawning gap between expenditure and revenue proposed in the budget, the Telangana government is mulling a hike in taxes, highly-placed sources in the finance department said.

While the Centre is yet to respond to the state government's letter seeking permission to go in for open market borrowings, senior officials said there would be no other option for the government but to effect a hike in several taxes in the absence of any encouraging signs from the Union finance ministry. "We can wait up to mid-December. If there is no reply from the Government of India, then the state government has to look for alternative means to mobilize resources. Enhancing taxes is an option under discussion," said an official.

The government which announced the tax-free budget proposed to the tune of Rs 1,00,637.96 crore against the total revenue of Rs 48,620 crore, has sought to use the option of open market borrowings in order to raise Rs 17,774.30 crore funds. But with FRBM norms (fiscal responsibility and budget management) prohibiting a state government going in for borrowings beyond three per cent of GSDP (gross state domestic product) Telangana can borrow up to Rs 11,369 crore as the estimation of the GSDP for the year 2013-14 is pegged at Rs 3,78,963 crore.

Chief minister K Chandrashekhar Rao earlier this month, wrote to Union finance minister Arun Jaitley requesting him to relax the FRBM norms for the new state and allow his government to raise Rs 17,774.30 crore through open market borrowings. "Though we are running short of time, we are awaiting the Centre's response. The budget would be passed on November 28, and then we have to start spending money for the next four months," said finance minister Etela Rajender.

He said the state government was committed to budgetary estimates and there would be no downward revision irrespective of the Centre's response to the chief minister's request. "We are committed to fulfilling the promises made in the budget and allocating funds to various schemes and development works. The state government is ready with a contingency plan for resource mobilization," the minister said.

An official said the government was looking at mobilizing at least Rs 4,000 crore by increasing taxes and the main focus areas would include Motor Vehicle Tax (MVT), excise duty, stamp & registration fees, while an upward revision in Value Added Tax (VAT) on some commodities cannot be ruled out.

As the announcement of the tax hike is expected January next, the official said the life tax for non-transport vehicles costing below Rs 10 lakh might go up to 14 per cent from the existing 12 per cent. And for non-transport vehicles costing above Rs 10 lakh, the tax is expected to be hiked from 14 per cent to 15 per cent.

A substantial hike of over 20 per cent is expected in excise duty across the slabs. As far as stamps & registration duty is concerned, it is expected to be hiked to 0.7 per cent from the existing 0. 5 per cent, on property sales.

While it is not clear whether VAT would be altered considerably, the officials said the changes would be moderate. For instance, a wide range of commodities including pulses, grains, electronic goods, computer peripherals, chemical fertilizers fall under five per cent tax category, and the rate may be changed to 5.5 per cent.