Given the massive resources needed to fulfill the poll promises as outlined in the Congress manifesto,finance minister Pranab Mukherjee is likely to hike the Central value added tax (Cenvat) rate to at least 10 per cent from 8 per cent now. The service tax rate is also likely to be increased to 12 per cent from 10 per cent now. The peak customs duty will be retained at the existing level to give a cushion to the industry from cheap imports. According to sources in the revenue department,the Cenvat rate has been halved to 8 per cent from 16 per cent over the last two years. P Chidambaram as finance minister cut Cenvat to 14 per cent from 16 per cent in Budget 2008-09. Subsequently,the first fiscal stimulus package announced on December 7,2008 saw it being slashed to 10 per cent. Mukherjee cut it further to 8 per cent on February 24 this year. In his pre-Budget meeting with CEOs recently,Mukherjee asked them to be realistic while submitting their recommendations for duty cuts. Clearly,the governments revenues too have taken a hit because of the economic slowdown. The revised estimates of gross tax receipts for 2008-09 were almost Rs 60,000 crore less than the Budget estimates. In fact,the budget estimate for excise collections for the current fiscal is lower than that achieved in 2005-06. Almost 96 per cent of all goods fall under the 8 per cent Cenvat rate. There are some that are exempt from excise duty,some that attract excise duty at 4 per cent and some others that attract 12 per cent levy. In fact,industry chambers including the CII and the Ficci are asking the revenue department to spare some sectors that are still battling the adverse impact of the global slowdown. These include export-oriented sectors such as leather,chemicals and gems and jewellery. Mukherjee is also likely to reaffirm the UPA governments commitment to introducing the Goods and Services Tax regime from April 1,2010. While he asked states to help meet the Centres deadline during his pre-Budget talk with chief ministers,sources said he would take the first step of moving towards the single GST rate expected to be 12 per cent by hiking both the excise and service tax rates by 2 per cent each to 10 per cent and 12 per cent,respectively. At present,the industry pays almost 24 per cent in indirect taxes the Centre levies Cenvat at 8 per cent,add states 12 per cent VAT,and another 4 per cent through local duties such as entry tax and octroi. Under GST,there will be only one tax rate for the whole country,which could be settled at 12 per cent.
