The current slabs of excise duty would be 10 per cent, 8 per cent and 4 per cent. Consequently, there would be a reduction in the duties of import of similar products.

In addition, the export duty on iron ore fines has been withdrawn while reducing the export duty rate for iron ore lumps.

On the service tax front, the benefit of refund of service tax paid by exporters on taxable services attributable to export of goods has been extended to include clearing and forwarding agents while increasing the threshold limit in the case of commission agent services procured from a foreign service provider.

These changes, though more than welcome as a measure for ensuring reduced pricing of products and motivating increased domestic demand, also pose a couple of significant issues which require deliberation. The first pertains to the consequences of the recent reduction of the excise duty rates vis-À-vis the next phase of implementation of indirect tax reforms. The Government has over the past two years clearly signalled its intention to move towards a single goods and services tax (GST).

Earlier this year, the Government had reduced the excise duty rates to 14 per cent to bring it closer to the existing service rate of 12 per cent in addition to reducing the rate of Central Sales Tax (CST) to 2 per cent with the intention of phasing it out eventually.

In addition, in the course of the last few days, the Government has also formally accepted the suggestion of the State Finance Ministers’ to introduce a dual GST subsuming excise duty, service tax and value-added tax.

In what has been considered as a critical concession by the States, the respective Governments have agreed to adopt uniform rates of taxation; one at the Central level and the other at the State Government level to reduce complications in implementation of GST.

However, with the excise duty rates being reduced below the existing service tax rate, one has to question what the continued multiplicity of rates portends for integration of the goods and services taxes by April 1, 2010.

The second aspect of concern is the limitation period for the fiscal incentives announced. One of the fundamental canons of taxation is that there should be certainty.

In keeping with this canon, several committees on tax reforms have unequivocally suggested that where an exemption has been issued to meet a specific objective, it should be reviewed periodically to ensure that there is no change in conditions on the basis of which the exemption was made available.

The same would ensure that investment decisions are not distorted on the basis of an exemption notification. None of the exemption notifications issued incorporates any such provision.

Therefore, whether this action of the Government can be termed as an ad-hoc measure, to minimise the impact or countenance the recessionary trend or purports to be a long-term measure based on which durable economic decisions can be based, remains to be seen.

One also needs to take note of the fact that it is widely believed that the policy workers are working on an overnight basis to announce another incentive package next month. This time-gap should provide adequate time to ascertain whether the slew of measures which have been announced ensure a change in direction of the economy as envisaged.

Needless to state it is essential that the next set of incentives should correspond cohesively not just with the tax measures which have been declared but also with the overall guiding policy initiatives.

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