In what may come as a relief to industry fighting a slump in demand, the finance ministry is yet not proposing to hike excise duty in the Union Budget for 2013-14, as it may further increase the input cost, fuel inflation and lead to an overall slowdown in economic growth.
“There has been some internal discussion between the Department of Revenue and Economic Affairs over raising the excise duty by another 2 per cent, but there is no formal proposal and the Department of Economic Affairs is not considering any proposal for a hike at present,” a senior ministry official said.
Although the industry has demanded a cut in the excise duty and service tax in this year’s Budget to boost consumer demand and boost investment, the lack of fiscal space may hold it back from handing out any stimulus this year.
Analysts said some tough fiscal measures like rollback in the excise and service tax to the pre-2008 crisis level may be in the offing in this year’s Budget in order to fight twin problems of lowering revenue and ballooning fiscal deficit.
“Various options are being debated, but there is feeling that raising excise duty may stoke inflation. However, a final decision will be taken when we approach close to budget,” the official told Deccan Herald.
Excise duty and service tax rates were increased in the last two Budgets to 12 per cent from an earlier 8 per cent. However, the industrial growth has significantly fallen and due to low capital investment and high inflation, demand for domestic goods and services has fallen.
It is in this context that the industry is once again raising its pitch for lowering the two duties. Industry Chamber Assocham had already released its pre-budget memorandum, which also includes lowering of corporate tax.
Most in the government also feel that raising excise duty will go against the norms of Goods and Services tax, which seeks a same level for both, service tax and excise duty.
Once GST is implemented, both the Centre and states may levy service tax at eight per cent each. Currently, states cannot tax services. Goods, however, are likely to be taxed at the peak rate of 20 per cent in the GST regime.
Both excise duty and service tax were at 14 per cent before 2008, when they were lowered in two tranches to 8 per cent as part of fiscal stimulus after the 2008 global economic crisis.
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