Eye on GST, govt prunes exemption list

INDIRECT TAX: Proposals related to excise and Customs would result in a net revenue gain of Rs 7,300 crore.

To prepare the ground for the introduction of the Goods & Services Tax (GST), Finance Minister Pranab Mukherjee has proposed to prune the excise duty exemption list by levying a nominal central excise duty of one per cent on 130 items currently enjoying exemption.

He also proposed to enhance the lower rate of central excise duty from four per cent to five per cent, saying most states had increased their merit rate of Value Added Tax (VAT) from four per cent to five per cent.

The proposals relating to excise and customs are estimated to result in a net revenue gain of Rs 7,300 crore to the government, against a loss of Rs 11,500 crore from the proposals on direct taxes. Most of this gain will come from excise duty measures, as the government is trying to minimise exemptions.

At present, there are as many as 370 goods that enjoy exemption from central excise duty but are chargeable to VAT by states. The exempted 130 items are mainly consumer goods like food items, mobile phones and compact discs. No Cenvat credit will be given for manufacturing these items.

Basic food and fuel, precious metals and stones would continue to enjoy exemption. In case of jewellery and articles of gold, silver and precious metals, the levy would apply only to goods sold under a brand name. The remaining 240 items would be brought into the tax net when the GST is introduced.

Mukherjee chose to keep the standard rate of central excise duty unchanged at 10 per cent. The service tax rate was also left untouched, as the government is planning a uniform rate for goods and services in the GST regime. While the finance minister did not mention a new date for introduction of the proposed tax regime, he said a Bill to this effect would be tabled in this session of Parliament.

“In view of the healthy growth in indirect taxes in 2010-11, I had the option to roll back the central excise duty to levels prevailing in November 2008. I have chosen not to do so for two reasons. I would like to see improved business margins translated into higher investment rates. I would also like to stay my course towards GST,” Mukherjee said.

Later at a press conference, Revenue Secretary Sunil Mitra said GST might not be introduced along with the Direct Taxes Code on April 1, 2012, but the government had the flexibility to introduce it any time during a financial year unlike a direct tax legislation.

As the garment industry has shown good growth in recent years, the finance ministry proposed to convert the optional levy into a mandatory levy at a unified rate of 10 per cent. Readymade garments and made-ups of textiles are currently under an optional excise duty regime.