The Telegraph
Since 1st March, 1999
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Destination, single rate of excise

New Delhi, Feb. 12: The government plans to continue with its policy of moving progressively towards a single excise rate while tightening up existing exemptions, including those for small enterprises despite objections from within the BJP.

The government will move towards a single rate of 14 per cent excise with special rates for motor vehicles and petro-goods at the higher end and processed food products at the lower end besides a duty-free status for life saving drugs.

Duty on kerosene is likely to be raised by 50-75 paise to bring it at near parity with diesel. However, duty on petro-goods will remain on a specific duty basis and not ad valorem as was being demanded from some quarters of the government. The finance ministry move, however, runs counter to an assertion made by petroleum minister Ram Naik stating there was no need to raise kerosene or cooking gas prices.

Besides, the finance minister has decided that while some amount of protection needs to be given to small-scale manufacturers, the basic thrust of the Vijay Kelkar report on direct taxes that exemptions for the small-scale sector be withdrawn over time will be retained.

Small-scale units, which have roped in top BJP leaders to plead their case for continued protection in the face of cheap imports and intense competition pressures from MNCs, will be allowed to continue to get duty exemption on a turnover of Rs 1 crore. But, they will be told to get ready for a rollback over the next few years.

However, luxury goods like airconditioners, which enjoy SSI exemptions, may not continue to do so.

The government also plans to bring all services under the Cenvat scheme, rather than continue with a separate structure of non-vatable service taxes on a few select services that cause economic distortions.

It also plans to allow states to levy vatable taxes on services as an incentive to get them to eventually move to an all-India VAT (value added tax) regime.

States have already managed to wrangle an in-principle agreement on this from the Prime Minister recently Their contention is that they lost out financially when they agreed to abolish taxes on inter-state movement of goods and this is one way of making good that loss.

West Bengal has, in fact, raised a demand that states be allowed to impose service tax on insurance, banking and telecom — potentially the most paying sectors in the service tax net.

Banking and insurance account for nearly 7 per cent of the country’s GDP and contribution of this sector to the national GDP is valued at about Rs 1,00,000 crore a year. The telecom industry is expected to generate revenues in excess of Rs 30,000 crore.

However, this is unlikely to be allowed. Currently, the insurance industry and telecom companies are collecting a 5 per cent service tax from customers, which is being paid to the Centre. Total earnings of the central government from service tax is estimated to be around Rs 6,000 crore.

The finance ministry wants the services VAT to be fully integrated into the VAT tax and service VAT will be allowed to be set off against VAT on a good where the service which has gone into its manufacture.

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