Indirect taxes like excise & customs duties have traditionally been the largest source of revenue for the Indian government.

However, this trend has changed since the last four years with the government budgeting for a higher contribution from direct taxes instead of indirect levies.

Interestingly, even in case of indirect taxes, the budgeted contribution of excise duties (the largest component) has steadily come down over the last ten years.

Despite a rise in manufacturing output, excise duty - the tax on manufactured goods - has come down.

There are many reasons for this. Primarily, the government has brought down the rate of basic excise duty from 16% to 10% over the years. Corporate tax and service tax collections have also increased considerably since early 2000. This has led to a drop in the excise contribution to gross tax revenues.

The cost of manufacturing in India is higher than many countries due to the higher tax on manufactured goods. The government has recognised this and brought down the basic rate of excise duty from 16% to 10% over the years.