The common man will bear the brunt of a hike in the prices of goods and services in fiscal 2012-13 on account of the 2% jump in both excise and service tax rates to 12% announced by finance minister Pranab Mukherjee in his Budget that focused on expanding the indirect tax base and strengthening of compliance.
Mukherjee wants convergence of both excise and service taxes, which is possible only when a composite goods and services tax (GST) is implemented, for which he was unable to commit a time frame. The increase in excise duty is not a step in the direction of GST, as the combined central excise and state VAT rates would be more than the 20% tax on goods envisaged under the GST regime. Mukherjee intends to evolve a common tax code for the excise and service tax.
The finance ministry will be able to raise R45,940 crore extra by the increase in excise and service taxes next fiscal. The government has decided to move from a limited positive list of taxable services to a negative list approach with somewhat wider coverage of services with the exception of 17 items. This, however, may not have much impact on revenue collection as the levy is applicable on most of the services even now, said Sachin Menon, head, indirect tax, KPMG. He said the effective increase in retail prices of goods would be 2.5% on account of the excise and service tax revisions.
The service tax exemptions other than those in the list, however, have been drastically reduced from 88 to 10. Even services that till now attracted less than 10% duty will suffer a corresponding 2% increase. Clearly, the idea is to shore up indirect taxes, that now accounts for about 45% of the total central tax receipts. Service tax collection, which has been steadily growing in the last decade, is projected to reach R124,000 crore next fiscal behind an expected excise collection of R193,729 crore and customs receipts of R186,694 crore.
?We expect half of the 2% excise rate hike will be passed on to the consumers in the short term. But it is better than having an elevated fiscal deficit, which has far more serious implications,? said R Gopalan, secretary, the department of economic affairs.
Some experts said the higher price of goods and services, however, may not lead to higher inflation as money supply remains the same and consumers may cut down on some products. But the focus on higher social sector spending may have an impact on inflation, they said.
Despite the country?s insufficient domestic production of crude oil and the consequent import dependence, Mukherjee raised the cess applicable on local production of crude to R4,500 a tonne from R2,500 now. Crude does not attract any basic CENVAT duty. The cess is absorbed by upstream companies like ONGC and Oil India and is not passed on to government-run retailers or the consumers.
Large cars would be expensive due to a 2 percentage points jump in excise to 24% and due to a shift to ad valorem rate in certain cases to 27% from a mixed duty of 22% plus R15,000. Import of gold would be costlier as customs duty has been doubled to 4%.
