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Excise cuts roll back to boost revenues! |
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The Union finance ministry is considering an increase in the central excise duty for some of the products that had benefited from the two rounds of reductions announced by the government as part of its fiscal stimulus measures last year.
With the government’s revenues in the first two months of this year showing no signs of buoyancy (direct tax collections grew only 5.5 per cent), the finance ministry is now identifying products belonging to those sectors that are doing relatively better than those severely affected by the economic downturn. The objective is to shore up revenues for the current fiscal year by selectively raising the central excise duty on products doing well, instead of an across-the-board increase in the duty.
In December 2008, the government had reduced the general rate of central excise duty for all products, except petroleum goods, from 14 to 10 per cent. In February, Finance Minister Pranab Mukherjee cut the general rate of central excise duty further to 8 per cent and the service tax rate from 12 to 10 per cent. The annual impact of the duty cuts on the government’s tax revenues was estimated at over Rs 75,000 crore.
Sectors that are likely to be exempted from any increase in the excise duty under this proposal include commercial vehicles and textiles, said government officials.
The need to increase the general rate of excise duty and mobilise more revenue has also arisen because the Ministry realises that the scope for mobilising substantial resources through disinvestment of government equity in public sector undertakings (PSUs) and the auction of 3-G licences for the telecommunications sector are limited.
The ministry is studying the latest trends in the industrial growth figures for different product categories to formulate a list of such goods for which general excise rate can be increased to either 10 per cent, the level that prevailed before the Interim Budget announcement, or 14 per cent, the level before December 2008.
A selective increase in excise duty is also under consideration because the finance ministry is already under pressure to spend more on various social sector schemes. At the same time, it is trying hard to contain the increase in the fiscal deficit for the current financial year, over and above the target of 5.5 per cent of GDP already projected in the Interim Budget.
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