Column: Indirect tax changes raise hope for more

Feb 18 2014, 03:50 IST
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SummaryMinimal changes leave us with anticipation of reforms in the full budget

From an indirect taxation perspective, the general sentiment in most pre-budget polls was that no major tax related amendments would be announced as is the case typically with most vote-on-account exercises. However, recent articles and reports across national dailies seemed to suggest that key industry issues under continued representation would be addressed. To recap, the forum chaired by Dr Parthasarathi Shome held a series of interactions with trade and industry during the second half of 2013. Some of these issues were addressed in the months of December 2013 and January 2014 through issuance of administrative circulars and notifications. This led to a belief and some level of expectation that a host of other indirect tax issues under continued representation would stand addressed as a part of the vote-on-account exercise. Specifically, some reports indicated a possible change in the rate of duty/ tax.

In this backdrop, the vote-on-account exercise has merely tinkered with the rate of excise duty for specific sets of commodities. While the theme and thrust of these amendments have been positioned as providing succour to the manufacturing sector, it is pertinent to note that the reduction in rate is effective only up to June 30, 2014, in many cases. Key beneficiaries of the excise duty reductions provided by the interim budget include the automobile, construction equipment, consumer goods and mobile phones industries.

A key beneficiary of the rate reduction appears to be the automobile industry, which, after consistently witnessing increasing rates of duties has been ďgiftedĒ with a reduction in the rate across product categories as under:

In addition to the same, there has been a marginal reduction in the rate of duty (from 12% to 10%) on various capital goods specified under Chapters 84 and 85 of the central excise tariff which lists various types of plant and machinery including consumer durables and electronics.

With this, the general expectation is that the prices of most consumer durables/electronics as well as passenger vehicle prices should come down in the next few days/weeks. However, a key factor to be considered is that, the stock already cleared from the factory and available at dealerships and sales outlet would have already suffered the higher duty rate. Unless the differential duty is borne by the manufacturer, a reduction in price seems unlikely. Whether, the benefits of the lower rate will even percolate down to the consumer by June 30 (upto which the

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