The finance ministry may levy excise duty on some of the exempted goods in the Budget, to meet the objectives of moving towards Goods and Services Tax (GST) and bringing more items under the tax net to increase revenues.
About 240 goods are exempted from central excise. The ministry is considering a proposal to add items to the list of 130 goods that attract one per cent excise duty, while some goods taxed at one per cent might be moved to a higher tax bracket of five per cent. Another option before the ministry is to increase the minimum rate from one to two per cent.
A finance ministry official said the idea was to gradually move towards GST by minimising exemptions. “In the end, we have to reduce exempted list to 99 goods, in sync with the state-level value-added tax (VAT),” the official added. Under the GST concept, exempted list of items are expected to be minimum because zero-tax items go out of the chain and producers do not get input credit on them.
In the coming Budget, the finance ministry may give an abatement while increasing excise duty on some products, keeping in mind inflationary concerns and interests of the industry. Some of these exempted items include processed food, already taxed by states under VAT. If the Centre puts them in the standard rate (10 per cent) or merit rate (five per cent) it could fuel inflation. So these items may be taxed at a nominal rate or abatement could be provided.
In the Budget for 2011-12, the finance ministry had introduced a nominal excise duty of one per cent on 130 items to show its commitment towards GST.
The 130 items were mainly consumer goods such as food items, mobile phones, and compact discs. Pens, pencils, crayons, drawing chalks, sports goods, lanterns, some military weapons, mathematical calculating instruments, spectacles and lenses, bicycles, sewing machines and needles, kerosene stoves, roofing and ceramic tiles, sand lime bricks, laminated jute bags, and adhesive tapes, among others, were also on the list.
The ministry, however, gave partial relief on 35 of these items by allowing for 35 per cent abatement on the excise levy. In other words, these 35 items, including tea, ketchup, soup, food mixes, flavoured milk, and coconut water, some medicine and stationary items attracted a duty of only 0.65 per cent.
In the last Budget, the finance ministry had enhanced the lower rate of central excise duty from four to five per cent on the argument most states have increased their merit rate of VAT from four to five per cent. It chose to keep the standard rate of central excise duty rate unchanged at 10 per cent despite speculations it would be increased to bring near to the pre-crisis level of 14 per cent.
