Financial Daily from THE HINDU group of publications
Thursday, Mar 14, 2002

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THAT THE GOVERNMENT is having a rethink on the ordinance giving it unfettered powers insetting excise duty tariff on manufactured goods is predictable. The official line when the ordinance was issued two months agoleft few in doubt that it was to be only a short-term measure. There were two compelling circumstances for the issue of such an ordinance: International crude prices had been softening in the run up to the promulgation of the ordinance. In the event, the hike in the excise duty on petroleum products without any upward correction in end-prices meant that additional revenues accrued to the Government even as the Oil Pool Account deficit remained manageable. This was confirmed later when the excise duty on petrol was hiked to 90 per cent — a level that would not have been possible given that the earlier rate was only 32 per cent and the maximum upward revision would have taken it to 64 per cent. It was also the time of heightened confrontation with Pakistan and any fiscal initiative that was seen as keeping up the psychological pressure on that nation was always welcome.

Things have changed now. The Finance Bill provides for a basic excise duty of 32 per cent and a specific duty of Rs 6 per litre on petrol. The combination of ad valorem and specific duty, if approved by Parliament, would confer considerable flexibility to the Government to hike tariff and mop up additional revenues, even within the limits set by the Central Excise Tariff Act, should international oil prices soften dramatically. As for the situation on the Pakistani borders, the psychological pressure such as it is has served its purpose. So viewed from any perspective, it was only to be expected that the Government would allow the ordinance to lapse. Just as well the restriction on the government's power to hike excise duties. . It is unlikely that the Government would face a situation warranting use of the emergency powers to set excise duty tariff to correct any anomaly — certainly not beyond the authority of setting the tariff at twice the current level already available to it. It is never a good principle of fiscal policy to confer on the Executive unfettered powers to set tax rates. The case of Customs may be different as the possibility of dumping may require extraordinary response at times.

Nodoubt some flexibility is needed in resetting excise rates through Executive action. For instance, should the Government perceive any tendency by the industry to resort to profiteering taking advantage of favourable market conditions, sucking out excess profits through duty hikes would be a fit case for Executive action. Similarly, should the fiscal situation deteriorate dramatically because of drought, war or some other reason, a quick Executive response through tariff revision is justified. But the limit of a 100 per cent increase already available is quite adequate and should serve the Government's purpose. Taxation is too important a matter to be left to the sole discretion of the Executive. As it is the hike in tariff on the strength of the ordinance has led to the mop up of Rs 1,500-2,000 crore in the last two months, without Parliament approval.

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