Excise duty norms may soon change for some sectors that are prone to tax evasions. Some of these sectors include iron and steel, paper, tiles and copper. The government is planning to impose the manufacturing tax (excise duty) on plant capacity and not on the total factory output of the companies.
This was earlier introduced in the case of gutkha (chewing tobacco), where monthly tax collections grew from Rs 50 crore monthly to about Rs 250 crore. The move, that comes in the backdrop of excise duty collections growth dipping by 8.7% in October, is aimed at boosting payments from sectors that have seen more cases of tax evasion in the past.
A proposal to extend it to some more sectors is being actively examined, a finance ministry official said.
The production-based levy system has already proved to be a huge success in the case of pan-masala and gutkha, where collections have seen a five-fold rise, the official said.
The Central Board of Excise and Customs, the body responsible for all indirect taxes like excise, import duty and tax on services, under the finance ministry, now wants to replicate its experience in some other sectors that are prone to evasion.
The levy could prove advantageous for a company that produces more than the installed capacity while it would be a disadvantage for one that produces less. Put simply, a company would stand to gain if it manages to produce 120 million tonne from a 100 million tonne capacity plant as the tax would be levied on the installed capacity.
The provision that empowers the government to charge excise duty on the basis of capacity of production was brought in as a part of the Finance Act, 2008. The Act had inserted a new section, Section 3A, which empowers the government to charge excise duty on the basis of capacity of production in respect of notified goods, and to notify the procedure for the same.
The government, in December, 2007, brought the pan-masala and gutkha sector under the levy scheme providing for payment of duty on the basis of number of packing machines installed in the factory premises of a manufacturer of these goods on an optional basis.
The levy was made mandatory subsequently after the change in the Central Excise law. The collections from the sector have grown five fold since then, the official said. Dismal excise duty collections have remained an area of concern for the government.
A large number of exemptions like area-based under which factories located in states like Uttrakhand, Himachal Pradesh do not have to pay excise duty and evasion of duty have been the key reasons cited for the dismal growth. Collections grew by a minuscule 0.6% in first seven months of the current financial year (April-October), 2008.