Finance Minister Pranab Mukherjee on Monday retained the rate of standard excise duty at 10 per cent in the Budget for 2011-12, giving a little respite to industry, which feared a rollback of stimulus measures.
However, he has brought 130 items under the tax net by withdrawing exemptions granted earlier, though the burden would only be of the order of 1 per cent. Most of these relate to the consumer goods sector.
The government had announced a slew of stimulus measures in the form of excise duty cuts and exemptions to combat the crippling effects of global financial crisis that broke out in 2008. However, following the improvement in the situation, industry had feared the excise duty rate would again be raised.
Mukherjee said he chose not to roll back the stimulus by way of increasing excise duty because the country will soon be moving toward Goods and Services Tax, subsuming most indirect central and state levies.
"I would like to see improved business margins translated into higher investment rates. I would also like to stay my course toward GST. I have therefore decided to maintain the standard rate of central excise duty at 10 per cent," he said in his Budget speech.
Mukherjee also retained service tax at 10 per cent for 011-12, but added a few more which will give him an extra Rs 4,000 crore.
He also proposed certain changes in the central excise rate structure to prapare the ground for transition to GST, thereby removing a number of exemptions.
"At present, there are about 100 items that are exempt from central excise as well as state VAT. In addition, there are as many as 370 items that enjoy exemption from central excise but are chargable to VAT. I proposed to withdraw the exemption on 130 of these items that are mainly in the nature of consumer goods," he said.
Mukherjee added that the remaining 240 items would be brought into the tax net when GST is introduced.
"A nominal central excise duty of 1 per cent is being imposed on these 130 items that are entering into the tax net," he added.
Mukherjee started the process of withdrawal of stimulus provided to the industry in 2008-09 and 2009-10 to combat the impact of the global financial meltdown triggered by the fall of America's iconic investment banker Lehman Brothers in September, 2008.
With the economy showing signs of recovery, the Minister raised excise duty to 10 per cent from 8 per cent in the last Budget.