This Union Budget could bring a major realignment in indirect taxes, which will boost the Centre's efforts on GST and the Make in India campaign. Sources say the government may have to prune the list of items which do not attract excise duty from the current 250.
Also, to speed-up GST implementation, the government may have to impose excise duty on such items, since state governments already levy value-added tax (VAT) on them.
Take, for instance, products like cottage cheese, milk food and milk powder, edible oil, pizza bread, non-electronic toys, and tractors. All these currently attract zero excise duty, and a five percent VAT from state governments.
Additionally, a few items which attract a concessional excise duty may see peak excise rate of 12 percent being imposed on them.
CNBC-TV18 has also learnt that in an effort to cut input costs for domestic industry, the special additional duty or SAD may be lowered from 4 percent to 2 percent, bringing it in line with central sales tax (CST).
Experts say a cut in SAD will also go a long way in addressing the problem of inverted duty structure, where input taxes are higher than output tax.
Pratik Jain, partner, KPMG, says, “So if GST has to come from April 16, there are many things that need to be done. I'm expecting to start with excise exemptions, many of them to be rationalized because there are some 200-250 that are exempt from excise duty. So, you’d rather do it now than wait for GST to happen.
Now some of these measures may not yield huge revenues to the exchequer, but they will be an important realignment of central taxes to facilitate GST.
Keeping the GST rollout in mind there could also be a case for hiking the service tax rate upto 2 percent. The government may do so in phases as a sudden jump in rates will impact consumer demand.
The recent moderation in fuel prices probably allows space to the government for such a move and this could be an important policy call that the Modi government will have to take, at an appropriate time.
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