Loss to exchequer pegged at ₹250 crore; Jaitley counting on growth to recoup it

You may end up paying more for sugar and rail travel, but the prices of cars, bikes, televisions, refrigerators and air-conditioners will not go up for the time being.

The Government on Wednesday extended an excise duty concession — due to expire in a few days — by six months.

Excise duty is levied at the factory gate and included in the maximum retail price of a product.

“Considering the present situation in various sectors, the Government today decided to extend the facility of reduced excise duty to all those sections (automobiles, consumer durables and capital goods) for a further period of six months. They will continue till December 31, 2014,” Finance Minister Arun Jaitley told reporters.

The relief, as announced in the Interim Budget, was originally scheduled to end on June 30.

In the Interim Budget presented on February 16, the then Finance Minister P Chidambaram had lowered excise duty on small cars, motorcycles, scooters and commercial vehicles to 8 per cent from 12 per cent.

The duty on sports utility vehicles had been cut to 24 per cent (from 30 per cent), on mid-size cars to 20 per cent (24 per cent) and on large cars to 24 per cent (27 per cent). Similarly, on capital goods and some consumer goods, the levy was reduced to 10 per cent from 12 per cent. The cuts were made to give a boost to the manufacturing sector.

Limited impact

Despite the reduction in duty, auto sales did not pick up in the March-April period, though some positive signs were seen in the May sales figures.

Sales of capital goods and consumer goods also continue to be sluggish.

The Finance Minister expects industry to show positive results in the coming months. “We also expect that the benefit of these duty concessions will be passed on to consumers,” he said.

Jaitley said that there would be revenue implications, but hopes to recover any tax loss from the benefits accruing to the economy.

He also said that the extension of the concession cannot wait till the full Budget is presented on July 10. The Finance Ministry estimates a monthly loss of around ₹250 crore to the exchequer from the duty cut.

Industry reaction

Vikram Kirloskar. President of the Society of Indian Automobile Manufacturers (SIAM), welcomed the move. “We are certain that the extension of the reduced excise duty will contribute positively to improve buyer sentiment and help in bringing about a sustained recovery in the automotive industry, which has been languishing for over two years now. This will go a long way in bringing back growth, investments, and encourage higher employment,” he said.

Abdul Majeed, Partner with PricewaterhouseCoopers, said that the extension was a very positive development for the auto industry. “With the growth and exercise duty sop, the auto industry will get back on the growth trajectory,” he added.

A spokesperson for electronics giant Samsung said that the move will continue to benefit growth as well as local manufacturing in the sector.

(This article was published on June 25, 2014)
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