Excise Exercise

Excise duty can only be charged on the value when goods first enter into the market stream. Subsequent value additions are not chargeable. To load the manufacturer with levy on value added at the point of the retailer or whole seller defies all logic. Only a VAT system can mop up the revenue.

While the new system could be seen as an interim arrangement for transition to a full fledged VAT system, it is not difficult to see that the government is taking a massive gamble with the projected additional revenues out of the move. Manufacturers, for example, whose ex-factory prices of produce are less than 50 per cent of the maximum retail price will definitely end up paying more. But contra-wise, those whose ex-factory prices are more than 50 per cent of MRP will pay only on 50 per cent of the MRP.

 

Worse, this system threatens to add more confusion to the excise accounting structure. Going by the Budget announcement on possible levies that will be exempt from final computation of MRP, the government could well be looking at an impossibly complex maze of eligibility and concession criteria. No company, for instance, sells in one state. To account for sales in all geographical territories, even before the goods have moved out of the company premises is almost impossible. The Budget talked of simplifying the excise compliance structure; what will ensue is a bigger mess.

Finally, there is the point about government discretion in the matter of targeting excise as a percentage of MRP. What, for instance could be the logic behind targeting 50 per cent of MRP for excise levy in the case of toileteries? What stops the government from pegging it to 80 per cent for airconditioners or some such commodity of arguably luxury consumption? The matter is entirely discretionary. There too, the notifications are through executive orders and are not subject to parliamentary scrutiny. So while there will be three slabs of excise rates, there will be any number of cutoff points on which the rates will apply, one for each commodity.