Union Budget 2012: FM announces calibrated excise duty hike to 12%

Finance Minister Pranab Mukherjee announced a 2 percentage point hike in the peak excise duty from 10% to 12%.

Source: Moneycontrol.com

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Finance Minister Pranab Mukherjee announced a 2 percentage point hike in the peak excise duty from 10% to 12%. He also proposed to set up a common tax code for service tax and excise duty.

This hike in excise duty means auto companies now have to pay excise tax of 24% and the effective excise duty hike on cigarrettes is 20%.

Duty on readymade garments and processed raw food was reduced and mobile phones have been retained at 1%. Silver jewellery has been exempted.

This hike in excise and customs duty will yield over Rs 27,000 crore for the government, but will adversely impact the common man.

Due to slowing growth and high inflation, the manufacturing sector was already having a tough time making ends meet. A hike in excise duty will only add to their problems, making the cost of producing goods more expensive.

Excise duty has a direct relation to such sectors as auto, FMCG, capital goods, leather, gems and jewellery, fertilizer, textiles and consumer durables.

Though the collection of excise is to augment as much revenue as possible to the government, over the years it has been used as an instrument of fiscal policy to stimulate economic growth. But for a nation already reeling under cost pressures, this hike will (would have) only make (made) the cost of goods more expensive for consumers.

CII was against a hike in excise duty as it would adversely affect the growth prospects of the industry and result in higher cost to the consumer, in turn leading to inflation. However, because the dire fiscal situation, a hike in excise will only mean higher revenues for the government.