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FinMin mulls extension of tax cuts for auto sector
December, 29th 2014

The Union finance ministry might extend the excise duty cuts granted to the automobile sector beyond their expiry date of December 31, as the sector faces slowing sales.

“It is under consideration,” minister of state for finance Jayant Sinha said on the sidelines of an event here, to a query in this regard. His senior, Arun Jaitley, has already said, “Let’s wait till December 31.”

Jaitley’s predecessor, P Chidambaram, had announced these cuts in the interim Budget presented to the Parliament in February. The former finance minister had lowered the excise duty on small cars, motorcycles, scooters and commercial vehicles to eight per cent, from 12 per cent. The duty on sports utility vehicles had been cut to 24 per cent from 30 per cent, on mid-size cars to 20 per cent from 24 per cent and on large cars to 24 per cent from 27 per cent.


P Chidambaram had announced these cuts in the interim Budget presented to Parliament in February
Arun Jaitley had extended these in June by six months, before he presented his Budget in July
The aim was to boost the manufacturing sector and larger economic growth, which had fallen to below five per cent in 2012-13 and 2013-14
Manufacturing production data showed a five-year low of a little over seven per cent in October

The levy was also reduced from 12 per cent to 10 per cent on capital goods and some consumer goods. Jaitley had extended these cuts in June by six months, even before he presented his Budget in July.

The aim was to boost the manufacturing sector and larger economic growth, which had reduced to below five per cent in 2012-13 and 2013-14.

However, manufacturing production data showed a five-year low of a little over seven per cent in October.

Car sales had declined for a second month in a row, year on year, by 2.6 per cent to 159,000 units in October, despite the festival season, according to the Society of Indian Automobile Manufacturers (Siam). Motorcycle sales were down 8.7 per cent to 10,08,761 units in October.

In November, however, there was a rise in car sales. These increased 9.5 per cent to 156,000 units in the month on the yearly basis. However, motorcycles’ decline continued, sales falling three per cent to 853,000 units from 880,078 a year earlier, said Siam. Various trade bodies and industry chambers had approached the finance ministry to extend duty cuts on the automobile sector. The Confederation of Indian Industry asked the ministry to extend these till March 31, 2015.

Meanwhile, the finance ministry said tax collections, both direct and indirect, were improving. On expenditure control, it said it was looking at many options.

Sinha said, “We are very confident that we will be able to achieve the fiscal deficit target of 4.1 per cent (of gross domestic product) in the current financial year.”

Revenue Secretary Shaktikanta Das said his department was trying its best to achieve the tax targets, holding regular review meetings with officers.

Direct tax collections rose 5.7 per cent to Rs 3.29 lakh-crore during April-November, over the same period a year before. Indirect tax collections in the period were Rs 3.28 lakh-crore, up 7.1 per cent from a year before.

The finance ministry’s mid-year economic analysis had estimated a tax shortfall of Rs 1.05 lakh-crore, due to over-estimation in growth of nominal gross domestic product and tax buoyancy.

Sinha said the yet-to-come-recommendations of the 7th pay commissions would be factored in the next Budget.

He said India’s tax to GDP ratio is 15.5 per cent, while the OECD average is over 30 per cent.

On unaccounted money via participatory notes, the MoS, said the know-your-customer norms for these instruments have been significantly strengthened. “(We are) not worried about P-notes as a way of bringing black money,” he said.

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