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Excise, customs exemptions may be scrapped
May, 31st 2008
Where is the government going to find money to step up public investments in agriculture, infrastructure and manufacturing? A neat Rs 60,000 crore roughly 2% of the expected GDP for 04-05 could be mopped just by knocking off all the existing excise and custom duty exemptions.
The other option to raise resources is to monetise deficit by printing more money, according to senior government officials. Monetising to the extent of 1.5% of the GDP could yield Rs 45,000 crore, if the GDP for 04-05 grows to Rs 30 lakh crore at current prices. However, monetising the deficit may be a difficult proposition, as it would raise the level of inflation from 4.5%-5% to 6%.
The estimate of Rs 60,000 crore has been made based on the assumption that all indirect tax exemptions are removed and the original rates are restored. This means that a 4% excise duty would be imposed on, for instance, toys or unbranded surgical bandages that currently enjoy exemption.
Several dairy products, meat preparations and other food products are exempt from excise duty. There are also hundreds of non-food products enjoying excise exemptions, ranging from naphtha supplied to specified power projects, residues of petroleum oils used as feed-stock for fertilisers or as fuel for generation of electricity by government-owned entities.
On the customs side, importer-specific, export-related, project-specific and end-use exemptions are allowed. Many project-specific exemptions, particularly on import of capital goods, were given in the past to boost investments in infrastructure. The Central Board of Customs and Excise (CBEC) has now been directed to review all existing exemptions, including those which are project-specific.
Quite obviously, the government cannot knock off exemptions at one go, especially ones where it has been bound by international commitments, such as the zero import duty regime in IT products by 05 and contractual obligations. It may also find it tough to knock off exemptions on items like life saving goods, exemptions given to the small-scale sector and region or area-based excise exemptions.
The government had projected raising Rs 1,41,729 crore from excise and customs in the revised estimates for 03-04. It has estimated a 13% growth in excise and customs revenue in the budget estimates for 04-05 during the vote on account. The new government is set to raise these estimates further when it presents the annual budget for this fiscal. With the CMP of the United Progressive Alliance committing to raising public investments in agriculture and infrastructure, finance minister P Chidambaram will have to look for alternate sources of resource mobilisation.
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