The government could replace the flat rupee-denominated excise levy on some manufactured goods with the usual percentage-based system, or ad valorem basis, in the budget as a step towards the proposed goods and services tax , or GST. It could also prune the list of items that enjoy exemption from excise duty.

"We have to prepare the ground for GST, so the idea would be to bring about structural changes in indirect taxes," said a government official.

However, the proposal could undergo changes or even be dropped as the budget is finalised, particularly if it leads to increase in prices, especially as inflation has begun to rise again.

Ad valorem taxes are levied as a proportion of value of product and the absolute amount collected rises with the value of the good manufactured.

In contrast, specific taxes are flat levies not related to the value of good produced.

Though, most manufactured goods attract duty on an ad valorem basis, but there are still a number of items that are levied specific duty or have a specific component over and above a regular duty.

Coffee, tea, spices, cement, salt, tobacco, sugar and sugar products, automobiles, auto parts and petroleum and petroleum products are some items that attract duty on specific basis. "Structurally ad valorem duties are preferred from policy point of view as they facilitate easier credit and also capture value addition at each stage," said Bipin Sapra, partner, Ernst & Young.

However, the duty structure of petroleum and petroleum products is unlikely to be touched as these are to remain outside the goods and services tax.

The government also levies cesses, which are in the nature of specific duties, on many goods to raise funds for a particular purpose.

"The government should take this opportunity to rationalise the number of cesses which are applied as specific duties such as auto cess and National Calamity and Contingency Duty and merge in the ad valorem duty itself," said Pratik Jain, partner, KPMG.

The government is also looking at bringing more items under the tax net in line with the GST regime where all goods will be taxed.

Though, duty exemption on daily consumption items such as packaged atta, sooji, besan may continue, processed foods, such as ketchup, noodles, and other goods such as footwear could come under tax net.

"The idea is to keep only a few essential items in the exempted list," the official said.

At present, processed food items attract zero excise duty though states levy value added tax on a large number of them, including edible oil.

However, he said the duty rationalisation would be done in a manner so as to ensure that it does not pinch the common man or feed inflation.