Government is considering a proposal to not hike the current rates of service tax and excise duty and to continue with the current rates of 12 per cent to provide stimulus to Indian companies.
One of the officials of the department said, “There is a clear need to give some kind of boost, even if it is in terms of improving sentiments, in order to revive industrial activity. Not burdening them with additional or higher taxes could be one solution.”
He further added that a final decision would be taken close to the Budget 2013-14.
The Indian economy is expected to clock a mere six per cent growth this fiscal and the government has been striving to revive the manufacturing sector, which is a key contributor to growth.
Industrial production dipped by 0.1 per cent in November with poor performance by manufacturing, metal and capital goods sector and once again raised hopes for an interest rate cut by the Reserve Bank of India.
The issue was also raised by industry chambers last week at a pre-Budget meeting with finance minister P Chidambaram, where they suggested that indirect tax rates should not be tinkered with as it would impact manufacturing.
The finance ministry was understood to be considering hiking rates of service tax and excise duty by 2 per cent to 14 per cent, to earn additional revenue to plug the fiscal deficit.
But this would mean bringing excise duty rates back to the pre-crisis level of 14 per cent, while the service tax rate would be pushed to an all-time high as well. Additionally, it would make goods and services more expensive and could dampen consumer demand to some extent.
“If the overall objective is to improve revenues, then leaving rates unchanged could also work as it could help companies and in turn improve the tax collection,” the person argued.
Source – Financial express