Tuesday, February 18, 2014
By John Andrew
Slash in excise duty on cars by FM welcomed by all segments
The UPA government announced its last interim budget, as India goes to polls in the next couple of months, where a few reductions in excise duties have been made. For example, excise duty has been brought down from 12 per cent to 10 per cent on all goods falling under chapters 84 and 85. Additionally, there has been a reduction of excise duty on cars across all categories (different engine capacities and sizes). The reduction in excise duty rates for goods falling under chapter 84 and 85 is going to be viewed by the industry (and its customers) as good news but also as only a blip. This is because development measures, rather than taxation, have a long term impact.
Many of the goods that fall under these chapters are used as capital goods in other industries. Therefore, the excise duty that is levied on the goods produced in this industry is offset against the excise duty liability of their customers. Therefore, for many of the goods in chapters 84 and 85, the reduction in the rate of tax would not represent a real saving. In fact, the rate of duty on inputs would be over 16 per cent in many cases. This is with 12 per cent excise duty and 4 per cent Special Additional Duty. With the output now taxed at 10 per cent, there will be some industry players who find the rate of excise duty on their output is less than the creditable taxes on inputs.
The interim budget also has announced a reduction of excise duty on cars. These reductions range from 3 to 4 percentage points. This is a welcome move. Unlike in the case of goods falling under chapters 84 and 85, the excise duty on cars forms a part of the final price paid by consumers. Further, the state levies VAT on the price including excise duty. Therefore a 3 per cent reduction of the rate of excise duty results in a reduction of the price of the car not only due to the excise duty reduction, but due to the consequent VAT reduction as well. We would hope that this reduction is not reversed under the regular budget by the next government.
Source: Economic Times