A key expectation from Budget 2009 on indirect taxes is with regard to rationalisation of duty rates. The issue can be framed from the government standpoint as one requiring a trade-off between the imperative to address the very large fiscal deficit, with the attendant challenges on revenue mobilisation, and the continued sluggishness of the Indian economy and for the need to consequently address the economic slow down from a fiscal standpoint. However, the issue is also to do with setting the direction in terms of signalling of the likely rates of indirect taxes under the impending Goods and Service Tax (GST).

In relation to customs duties, the poor pace of collections so far and the challenge of the fiscal deficit could mean that the government would possibly not reduce the median rate of customs duty from the present rate of 10 per cent to ASEAN levels as per its stated intent. Indeed, in addition the government could also minimise product based and end use based exemptions. Further, the government might reintroduce the basic customs duty of 5 per cent on crude oil imports. The customs duty on crude oil imports was withdrawn at a time when crude oil prices were at an all time high. Given the significant decrease in crude oil prices since then, the reinstatement of the 5 per cent duty on crude is a distinct possibility. This, of course, leads to the discussion around freeing up retail prices of POL such as petrol and diesel in order to protect the refineries from incurring losses. The government could seriously consider this policy.

... contd.