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Finmin plans to consolidate excise tax rate at 16%
January, 12th 2007

The finance ministry is thinking of consolidating excise duty rates at about 16% in the coming Budget in order to prepare for a goods and service tax (GST) regime by 2010.

If we have to do away with the central excise duty and introduce GST in another three years, then there is not much point in fiddling with the excise duty structure too much in the coming Budget, a finance ministry official said.

The move will be in tune with the broad policy of merging central service tax and central excise duty to come up with one central tax rate, which would be somewhere between 14% and 16%.

This would mean converging different tax slabs under the excise duty structure at the 16% slab by reducing excise duty on products such as pan masala as well as big cars that attract a 24% duty. Conversely, it will also mean increasing excise tax on items falling under the 8% excise duty slab.

However, the finance ministry is unsure about reviewing the duty on petrol and diesel, as they are major revenue earners for the government. The current excise duty on petrol is 8.16% of ex-factory price plus Rs 13.26 a litre, while for diesel it is 8.16% plus Rs 3.32 a litre.

THE MOVE:Central service tax and excise duty will be merged to facilitate the creation of one central tax rate
Different tax slabs under the excise duty structure may be converged at the 16% slab
THE CURRENT STATUS:Excise duty is levied at 8%, 16% &24%. But products like tobacco are taxed between 18-75%
EXPERTS: Its is a step in the right direction, but number of tax exemptions need to be cut
Currently, excise duty is levied at three main rates of 8%, 16% and 24%. However, products such as tobacco are taxed at rates ranging from 18% to 75%.

Noted economist and tax expert Mahesh Purohit is of the view that while this is a step in the right direction, he feels that the number of tax exemptions also need to be reduced. Further, the different excise duty rates must be sorted out and a two-rate structure should be introduced.

R Muralidharan, principal consultant Pricewaterhouse Coopers agreed and said, To move towards a GST regime, we would require a broad based tax rate at about 20% or a reduction in the number of exemptions. This will help make domestic companies globally competitive.

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