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Tax sops review on the cards
September, 25th 2009

The massive duty cuts introduced by the government six months ago to battle the slowdown have hurt a lot more than the exchequer could truly afford.

So, a review is on the cards to beef up the coffers much sooner than was initially expected.

Six months into the new fiscal and there are indications the government will revisit the massive duty cuts done to prop up the economy, earlier than expected.

Finance ministry officials have told NDTV that the review on excise and service tax rate cuts could begin as early as next month.

Finance Minister Pranab Mukherjee is planning to revisit the excise and service tax rate cuts as early as October.

NDTV learnt from government sources that the review might happen just after the state assembly elections, against the November-early December period planned earlier.

Interestingly, the finance ministry's internal assessment indicates that duty cuts have affected revenue collections far more than the economic slowdown.

For instance, during April-June quarter the excise collections due to the slowdown would have fallen by a mere Rs 700 crore or a three per cent dip. But instead, it suffered an actual loss of Rs 7000 crore or a 28 per cent fall due to the cut in excise rates.

Similarly, service tax collections have been projected to actually grow by over Rs 3770 crore, which is a massive 40 per cent jump.

But due to the duty cut, collections actually fell by Rs 3500 crore, almost a 37 per cent fall.

This clearly indicates that the domestic slowdown is not as bad as has been made out to be.

In the final analysis, the finance ministry has said that the total hit on indirect tax collections during the first quarter would not have been more than Rs 4000 crore due to the economic slowdown, had the duty rates remained unchanged, as against the Rs 14,000 crore actual loss to the exchequer due to the duty cuts.

The bigger story, however, is from the customs duties side, which has shown a higher drop in collections with a revenue loss of Rs 3,524 crore. The government decision to end the sops will help manage the fiscal situation much better.

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