Govt cuts excise, service tax; revenue loss at Rs 30,000 cr

New Delhi, Feb. 24 The Finance Minister, Mr Pranab Mukherjee, today gave up Rs 30,000 crore of revenue on an annual basis when he announced a slew of indirect tax concessions to bolster sagging demand for industrial goods and services.

This revenue foregone has not been factored in the Budget estimates for 2009-10.

He has also allowed the States to borrow more in 2009-10 for investing in infrastructure and help spur employment generation. Accordingly, States would not lose their debt relief facility in 2009-10 even if they were to exceed their fiscal deficit target by upto 0.5 per cent of Gross State Domestic Product (GSDP).

During the day, Standard & Poor’s (S&P) changed its outlook on India’s long-term sovereign credit rating from stable to negative. Mr Mukherjee said that this was “not unexpected. You have a global meltdown and it has its consequences”.

The latest stimulus, which could be the last one from the UPA Government before the general elections, includes the reduction of the cenvat rate to 8 per cent from the existing 10 per cent. About 96 per cent of the country’s excise revenues hitherto came under the 14 per cent rate, which was recently lowered to 10 per cent and now to 8 per cent.

The changes made in excise duty rates as part of the stimulus packages are now being extended beyond March 31, 2009. Service tax rate on taxable services have been brought down from 12 per cent to 10 per cent.

Also, excise duty on bulk cement has been reduced from 10 per cent or Rs 290 a tonne, whichever is higher, to 8 per cent or Rs 230 a tonne, whichever is higher.

However, the Government has decided to retain the rate of Central excise duty on goods currently attracting ad valorem rates of 8 per cent and 4 per cent respectively.

“It is another stimulus to the economy. I hope it will have beneficial impact. This will also help boost exports. The tax concessions would entail revenue sacrifice of Rs 30,000 crore (for a financial year)”, Mr Mukherjee told reporters after the Lok Sabha passed the Interim Budget 2009. The Finance Bill 2009 and the relevant appropriation Bill for the vote-on-account for the first four months of 2009-10 was also passed by the House.

In his reply to the debate in the Lok Sabha, Mr Mukherjee said that the latest figures confirm that the two fiscal packages (December 2008 and January 2009) were steps in the right direction. “Some of the key sectors of manufacture like cement and steel are exhibiting early signs of recovery”, he said.

Meanwhile, IT companies welcomed Mr Mukherjee’s announcement on Section 10AA of the Income-Tax Act. They hoped that the removal of the anomaly would help them get full tax benefits as had been originally envisaged in the SEZ scheme.