Govt starts stimulus rollback, raises excise duty by 2%

The government today increased excise duties by 2 per cent to 10 per cent on all non-oil products, as part of withdrawal of stimulus measures, with Finance Minister Pranab Mukherjee saying the economy was on the recovery path.

Excise duty was cut by six per cent in two phases since December 2008, from a peak of 14 per cent earlier, to perk up the economy, which came under the impact of deepening financial crisis.

However, Mukherjee, in the Budget for 2010-11, retained service tax at the level of 10 per cent.

The tax was cut by two per cent from 12 per cent as part of stimulus.

The tax proposals will pave the way for introduction of Goods and Services Tax by levelling both exise duty and service tax to 10 per cent.

Interestingly, the increase in excise duty came on a day when economic growth slips to six per cent in the third quarter from a stunning 7.9 per cent in the preceding quarter of this financial year.

As a result of partial withdrawal of stimulus measures, the government would stand to gain about Rs 46,500 crore from changes in the indirect taxes, mainly excise.

On other hand, Mukherjee announced major direct tax sops including income tax concessions, which will result in a revenue loss of Rs 26,000 crore.

Besides, Mukherjee increased excise duty on petrol and diesel by Re 1 a litre, a move that would make the motor fuel costlier.