Across-the-board cut in excise duties unlikely

With the Centre and the states still to agree on a compensation package for reducing the Central Sales Tax from 4 to 2 per cent, and the Goods and Services Tax on the back burner on this account, the government is not likely to undertake an across-the-board cut in excise duties from the present average slab of 16 per cent.

Finance ministry officials say that an across-the-board cut in excise duties is also unlikely in view of the low growth in excise collections in the last two years.

Excise growth during April-October has increased by just 7.3 per cent to Rs 60,401 crore compared with Rs 57,104 crore in the corresponding period this year.

Last fiscal also the excise collection target had to be revised downward to Rs 1,12,000 crore compared with Rs 1,21,533 crore estimated in the Budget for 2005-06.

Items which attract 16 per cent excise duty include aerated waters, petrol and diesel cars with length not exceeding four metres, mosaic tiles, glassware, tobacco and cigarette filter rods and umberallas.

"Since the manufacturing sector is growing at 12 per cent, there is no case for a duty cut in excise. At best, there are likely to be some sectoral cuts in the budget depending on the requests made by the sectors," an official said.

Some ministries like chemicals and fertilisers have already made a case to cut excise duties on drugs and pharmaceuticals.

There is a view in the ministry that excise duty rates and service tax rates should converge in the long run for ease of the GST.

In such a scenario, there is a case for increasing the service tax rate to 14 per cent and reducing the excise duty from 16 per cent to 14 per cent. However, the service tax rate is unlikely to be increased in the next Budget since the rates were increased in 2006-07, an official said.

Officials said the finance ministry was trying to examine the reasons for the slow growth in excise collections. "One of the reasons is that there has been an increase in imports of capital goods which are cenvatable.

The cenvat utilisation has accordingly increased. In fact, cenvat utilisation had increased by over 29 per cent during April-August this fiscal over the last year.

In addition to an increase in imports, a large part of the manufactured goods are exported in which case the duties on them have to be refunded," an official said.