Excise duty drops from 16% to 8% in one year

With almost 80 per cent of industrial output falling under the 10 per cent excise duty slab,the 2-per cent Cenvat cut announced....

With almost 80 per cent of industrial output falling under the 10 per cent excise duty slab,the 2-per cent Cenvat cut announced by the government today would translate into good enough price cuts in consumer durables and non-durables. Bikes and commercial vehicles will cost less and so will IT hardware and a host of consumer durables and non-durables.

According to Vivek Mishra,Partner,Tax,Ernst & Young,almost 80-90 per cent of goods are in the 10 per cent slab. “The 4 per cent and 8 per cent excise slabs account for only a few goods,” he said. The finance minister has kept the excise rates unchanged for goods that attract the 4 per cent and 8 per cent rates,respectively.

To get a sense of the relief India Inc has received in the last 12 months,excise duty have been halved from 16 per cent to 8 per cent now between just two budgets,translating into a massive relief for the industry. Many sectors including two-wheelers,automotive components and tyres,other consumer durables and textiles,etc. fall under this slab. One can look forward to price cuts in these businesses. Small cars are unaffected since the excise duty applicable has been retained at 8 per cent.

With the compounded effect that the duty cut in raw materials and other industrial inputs will have,the final price for the end user will most certainly drop by much more than just 2 per cent of the cost. “It will have a greater impact than just 2 per cent as it will cut the base value and thus sales tax will also fall for manufacturing. The cut in excise duty will also lower countervailing duty and other taxes based on countervailing duty,creating more demand for imports,” said Pratik Jain,Executive Director,KPMG. Some companies have already said they will pass on the benefits of the excise duty cut. Leading commercial vehicle makers Tata Motors and Ashok Leyland both said they would cut prices of trucks and buses. So did tyre makers Ceat and Apollo. The Manufacturers Association for Information Technology has said the prices of IT hardware other than computers would drop soon.

Experts also said the cuts will not make too much or a difference if the government sticks to its promise of a uniform Goods and Services Tax regime from April 1,2010. A makeover will be certain in the next financial years budget if the government stands by its commitment to implement the GST by next fiscal, said Saumitra Chaudhari,member,Prime Ministers Economic Advisory Council.

The 2 percentage points cut in excise duty will result in revenue losses of about Rs 20,000 crore. A similar cut in services tax rate would leave the exchequer poorer by over Rs 10,000 crore. The total impact would be over 30,000 crore,that is a little less than a fifth of the total excise and service tax collections of Rs 1,79,504 crore estimated in the next fiscal.