P. Chidambaram may extend excise relief, but wont cut rates

Written by Gireesh Chandra Prasad | New Delhi | Updated: Feb 10 2014, 19:44pm hrs
FMFinance Minister P.Chidambaram is also considering an extension of the excise duty exemption in hill states. Reuters
The interim budget for 2014-15 is likely to extend some state and sector-specific indirect tax breaks although tax rate changes are unlikely to happen. Finance minister P Chidambaram is also likely to present his perspective on the future course of reforms in both direct and indirect taxes if the UPA voted is back to power, in an answer to BJPs promise of a simpler tax regime.

Persons privy to governments budget discussions said most of the indirect tax changes recommended by the Parthasarathi Shome panel has already been announced in the last three months without waiting for the interim budget and hence major tax changes are unlikely in the budget.

However, certain end-use specific exemptions in service tax could be expected. While the tax rate presently at 12% is unlikely to be changed, services rendered to certain infrastructure businesses could get relief.

The government is also considering an extension of the excise duty exemption in hill states such as Himachal Pradesh and Jammu and Kashmir by either five years or until the GST comes into force.

The excise duty exemption available to hill states expires in May 2014. Excise duty is now levied at 12%. In the vote-on-account to be presented in Parliament on February 17, rate changes on the direct tax front (personal income-tax and corporation tax) are virtually ruled out.

These changes require Parliament approval and with elections around the corner, it is a matter of propriety that such matters are left to be decided by next Lok Sabha.

While excise or service tax rate change at this juncture may not be in keeping with the GST plan, the minister might also refrain from introducing any fresh exemptions as such a move would not be in conformity with the principle of uniform rates and harmonised structure embraced by the policymakers.

Indicating his disapproval of major cuts in tax rates, Chidambaram had recently attributed the tough fiscal deficit situation to the fiscal stimulus given during the crisis years of 2008-09 and 2009-10, which brought down countrys tax GDP ratio to 9.7% in 2009-10 from 11.9% in 2007-08.

With the curbing of the countrys current account deficit, likely at less than $50 billion or 2.5% of GDP, down from $ 88.2 billion or 4.8% last fiscal, the jewellery industry could expect removal of the non-tariff restrictions on gold imports and a partial rollback of the import duty on gold bars from the current 10%.

With total revenue receipts just about 60% of the budgeted Rs 10.5 lakh crore and expenditure at 70% of the budgeted Rs 16.6 lakh crore up to December, the government is relying on savings in various schemes, telecom spectrum auction eceipts and the mandatory fiscal discipline in the last quarter to limit the fiscal deficit to a level a tad lower than the budgeted 4.8% of the GDP.

The finance ministry had last week said it has lowered its planned borrowings for the current fiscal by Rs 15,000 crore in view of the better liquidity position. As per Chidambarams planned mid-course correction, fiscal deficit would be brought down to 4.2% of GDP for fiscal 2015, and then to 3.6% and eventually to 3% by fiscal 2017.

Chidambaram said last week that the ministry would continue to take steps until the end of the term of the government as has been done in the last few weeks. He had imposed a 5% export duty on iron ore pellets earlier this month to help the domestic steel industry.

Observers also anticipate a couplet or two from Chidambarams favourite poet Saint Tiruvalluvar, possibly on work half done, in his budget speech on February 17.