he government on Sunday announced a 4% cut in excise duty on products across the board, in a bid to boost factory production and push
consumer spending. Cars, steel and cement, among others, are expected to cost less with companies planning to pass on the duty cuts to consumers.
The government will have to forgo around Rs 8,700 crore worth of revenues in the current fiscal because of the excise duty cuts, which come into effect immediately.
The three slabs of excise duty14%, 12% and 8%applicable to non-petroleum products have been reduced by 4 percentage points each. The revised rates will be 10%, 8% and 4%. The rate of duty on cotton textiles and textile articles has been reduced from 4% to nil. The duty cuts pare revenue collections at a time when excise collections are negative and government spending is on the rise, pushing the fiscal deficit much higher than what was targeted in April. The fiscal deficit will be higher than what was expected to be... we dont have the numbers as of now, Planning Commission deputy chairman Montek Singh Ahluwalia said. The fiscal deficit was budgeted at 2.5% of the gross domestic product for 2008-09. But, this, he said, was desirable, coming at a time of contraction in the economy.
Giving details of the tax concession, a government statement said the ad valorem component of the excise duty on cars of 1,500 cc and above will be reduced from 24% to 20%. In cement, which attracts 12%, the specific rates have also been reduced to 8%. Further, the concessional rates for cement produced by mini-cement plants have also been reduced proportionately. No change has been made in the excise duty rates on petroleum products, specific rated items and tobacco products. To provide relief to the power sector, naphtha, imported for generation of electric energy, has been fully exempted from basic customs duty. At the same time, export duty of 8% on iron ore fines has been withdrawn completely, while the rate of export duty on iron ore lumps has been reduced by 10% to 5%.
The centres excise duty revenues declined by 8.7% in October 2008 to Rs 9,399 crore compared with Rs 10,293 crore recorded in the year-ago period. A growth rate of 9.3% in required to enable the government to collect Rs 1,36,610 crore in excise duty in the current fiscal. The dip in excise duty collections is largely on account of a 2% cut in median cenvat rate of 16% in the budget and large-scale exemptions such as area-based exemptions and sectoral exemptions. Customs duty collections also declined in October 2008 at Rs 9,265 crore, down 0.9% from Rs 9,353 crore collected in same month last year. Direct tax collections too remain grim, dipping 36% last month, though many say it could be a blip. Dismal excise duty collections, however, pose a more serious challenge. While India Inc, which had demanded a fiscal stimulus package from the government, now has the option of boosting its sales by passing on the benefit to consumers or pumping up its bottom line, the government has little option on the fiscal deficit front.