FM keeps service tax rate unchanged at 10 per cent to facilitate GST rollout.
The finance minister, Pranab Mukherjee, today raised the base excise duty on non-petroleum products to 10 per cent in the next financial year beginning April 1 from 8 per cent as the government rolls back stimulus measures to cut its fiscal deficit.
To facilitate the roll-out of the proposed Goods and Services Tax (GST) by April 2011, Mukherjee further kept service tax rate unchanged at 10 per cent. "The major objectives that have guided me in the formulation of my proposals on indirect taxes are the need to achieve some degree of fiscal consolidation without impairing the recovery process and moving forward on the road to GST," he said while presenting the Budget 2010-11 in the Lok Sabha today.
Experts, who argue having two rates for excise and service tax in the coming financial year would have been counterproductive for the economy, welcomed the move. Rajeev Dimri, partner at BMR Advisors, said, "This is the first time that rates of excise duties and service tax have been aligned at 10 per cent. While the two per cent rise in excise duty was a forward conclusion accepted by the markets, retaining service tax at 10 per cent was good as it would pave the way for introducing GST in April 2011."
Apart from the 10 per cent duty to be levied on all non-petroleum products, the government also raised rates applicable on cement and cement clinker proportionately (between Rs 40-65 per tonnes).
The finance minister also raised component of excise duty on large cars, multi-utility vehicles and sports-utility vehicles, which was reduced as part of the first stimulus package, by 2 percentage points to 22 per cent. To move back on a path of fiscal consolidation, the Union Budget raised central excise duties on petrol and diesel by Re 1 per litre.
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The government also went for structural changes in excise duties for cigars, cigarettes and cigarillos, while rates were hiked for all non-smoking tobacco such as scented tobacco, snuff and chewing tobacco.
The government exempted equipment required for preservation and processing of agricultural products, photo-voltaic panels, trailers and rotor blades from the excise duty, while it halved the duty to 4 per cent for LED lights, corrugated boxes and cartons, latex rubber.
Tax collections from central excise charges for 2010-11 is pegged at Rs 132,000 crore, a 29 per cent increase over the Rs 102,000-crore expected to be made this financial year. The target, experts say, appears difficult, considering excise duty collections have registered negative growth in the last two fiscals.
In the current fiscal, excise collections have fallen short by around Rs 4,500 crore, despite the target for the fiscal (Rs 106,477 crore) having been kept lower than the actuals of 2008-09 (Rs 108,613).
While excise accounted for 2.7 per cent of the GDP in 2007-08, the proportion fell to 1.7 per cent in the current fiscal. If collection targets are achieved next year, the proportion will register an increase to touch 1.9 per cent mark for the first time.