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The Centre is considering a proposal to increase the average rate of central excise duty from the current 12.5 per cent to about 14 per cent, in line with the prevailing service tax rates.
The proposal, which is still at a nascent stage, is being discussed as the Centre works on rolling out the goods and services tax (GST) regime.
“It is being looked into as the rates of central excise and service tax are different and should ideally be aligned before the start of GST,” said a source close to the development, adding that it could also act as an interim measure to increase revenue collections for the Centre to meet its expenditure obligations in 2016-17.
Exemptions under review
Additionally, the Finance Ministry is also planning to harmonise some of differing rates for central excise closer to the average rate as well as review exemptions in line with the plan to trim down exemptions under the GST regime.
“The exercise will begin soon. All this is would be in preparation for the implementation of GST to ensure it is smooth and less time-consuming,” said the source.
Chief Economic Advisor Arvind Subramanian in his report on possible rates for GST had called for reducing exemptions under GST from the current 300 (at the Centre) to a uniform list of 90 items.
The move, if it goes through, would be announced in the Union Budget 2016-17. The Modi government had planned to roll out the GST — which would subsume service tax and central excise duty as well as various State level levies – from April 1, 2016, but with the Constitutional Amendment Bill yet to be cleared by Parliament, it is now hopes to introduce it in the middle of the next fiscal.
However, one of the key concerns before the Finance Ministry would be the impact of an excise duty hike on industry, which is yet to register a definite revival.
“A higher excise duty could dampen sentiment for manufacturing activities at a time when most industrial production indicators are already subdued,” noted the source. The issue is also likely to be discussed at a pre-Budget consultation of Finance Minister Arun Jaitley with representatives of trade and industry on Wednesday.
Tax experts, however, noted that a hike in central excise duty rate would be inflationary and could push up the rate on manufactured products beyond the expected duty structure under GST.
“Essentially, excise duty as a concept in GST would no longer exist and a move to increase its rate would be unwarranted. What should instead be done is to phase out exemptions,” said Saloni Roy, Senior Director, Deloitte.
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