Budget likely to roll back excise duty cuts

The move comes in the wake of increasing pressure to consolidate

“Given growing pressure to initiate fiscal consolidation the finance minister is expected to resort to moderate roll back in duty cuts given to wide spectrum of consumer durables and industrial goods,” sources told Deccan Herald.   

Finance minister is also likely to restore the service tax rate to earlier level of 12 per cent, they added. Last year government had lowered excise duty to 8 per cent on wide range of consumer durables and manufacturing goods and service tax to 10 per cent to spur demand in the economy, which was badly impacted by the global slowdown.  

But these duty cuts have impacted revenue receipts on indirect tax front. This is mounting pressure on fiscal deficit—the net difference between the government’s expenditure and income.  

Demand for retention

Trade and industry bodies though in their have urged the Centre not to roll back duty cuts stating it may impact growth momentum.  The Unit of Internal Assessment (UIA) of finance ministry is understood to have recommended for phased exit of stimulus measures as the economy has started showing robust signs of recovery.

It has recommended that as part of fiscal consolidation the budget could withdraw measures that are not likely to impact the industry significantly, such as 2 per cent service tax cut.  On excise duty, the UIA has suggested the duty level may be increased “moderately” on such segments of consumer and manufacturing goods, which have shown “impressive” recovery.  The Tax Research Cell (TRC) of finance ministry is understood to have recommended for “marginal” hike in Excise duty in wide range of consumer durables and manufacturing goods to bolster revenue mobilisation.

The TRC has suggested the budget should be used as an opportunity to rationalise the structure of indirect taxes ahead of introduction of Goods & Services Tax (GST). The TRC while recommending restoring the service tax to 12 per cent level has noted an increase in service tax rate without an increase in excise duty could leave a gap of 4 per cent between the two taxes, which are to be subsumed once GST is introduced. This could come in the way of a smooth rollout of new tax regime, it noted.

Automobile and consumer durables sectors, which were major beneficiaries of duty cut, are learnt to be readying themselves for a partial rollback of excise duty cut, which had been given to generate demand.