IMPACT OF THE REDUCTION IN EXCISE DUTY AND SERVICE TAX

[Mr. M. GOVINDARAJAN]

     On 24^th February, 2009 the Finance Minister Shri Pranab Mukherjee announced a slew of indirect tax concessions.  Vide Notification No.4/2009-Central Excise, dated 24^th February, 2009 the excise duty has been reduced from 10% to 8% in certain cases.  About 96% of the country's excise revenues hitherto came under the 14% rate which was recently lowered to10% and now 8%.    Vide Notification No.8/2009-Service Tax, dated 24^th February, 2009 the Central Government exempts all the taxable services specified in Sec. 65(105) of the Finance Act, 1994 from so much of service tax leviable there on under Sec. 66 of the Finance Act as is in excess of the rate of 10% of the value of the taxable services.

     According to the Finance Minister it is another stimulus to the economy and it will have beneficial impact.   He is in the hope that this will also boost exports.   The concession gave up Rs.30,000 crores of revenue on an annual basis.

     The Corporate India's opinion is that the concession will help the companies tide over the impact of a global downturn.   The consumer's confidence will increase.   The steel manufacturers believe that it would stimulate the demand with customer getting better rates.

     The cement makers rose after the announcement.  It is expected that the Government's move to slash excise rate by 2% the prices of items of daily consumption will come down.   The business sector is interested at passing on the benefit to end consumer to increase their sales.   Some felt that it is the right time the Government has come out with such decision when the industry has been going through a rough time.   The durable industry welcomed the move of excise cut and it will have a positive impact in boosting consumer's confidence.

     Besides the Cement industry large FMCG categories like soap, detergents etc., infrastructure and real estate companies, and auto component makers will reap benefits from the decision of the Central Government.  The commercial vehicle companies, type producers may cut the prices.  

     The telecom. Section responded favorable and this move will help stimulate demand for products and services by making them more affordable.

     The stock brokers considered that the impact of reduction in excise duty and service tax would be insignificant for them.   According to them this is a small step, but it is a good move for the service industry as a whole.   The brokers want a cut or revocation of the Securities Transaction Tax which will reduce the cost of transactions.

     The exemption granted to service tax will reduce cargo handling charges, logistics, infrastructure and real estate companies may benefit from the case of construction contract availed by them.  The DTH service providers felt that the benefit of reduction in service tax would not reap the benefit since the taxation in respect of DTH companies come about 40%.  As far as the hotel industry is concerned the move will not have an impact on tariff cut. 

     The exporters are of the opinion that the reduction in service tax will not be of much help to the ailing export units.   They want to exempt export industries from payment of service tax.

     The consumers are the real persons to get benefits.   The processing charges on loans, cost of credit card transactions, mobile recharge coupons, DTH packages will be reduced.

     In respect of investors the premium charges for insurance policies, brokerage charges on securities as well as transaction costs on mutual funds investment would witness a marginal reduction by reduction in service tax rate.

     Though there are mixed responses on the reduction in the rates of excise duty and service tax it is not refutable that the action of the Central Government will bring relief to the producers, service providers, consumers and investors.