Excise duty hike on cars, tobacco coming this week?

Concerned over the expected shortfall in tax revenues, the Finance Ministry is likely to take a call on revising excise duties on cars and tobacco-related products this week. Excise duty on both the products was not revised in the Union Budget this year.

A highly-placed official source told Business Line that “various suggestions have come on this (revising the excise duty), but no final view has emerged. The Finance Minster is expected to decide once he is back from the UK.”

However, sources said that the task was not an easy one. As the rate of growth of manufacturing and capital goods is on a decline, any duty hike would affect demand, they said. There is also the fear of a fall in investment demand.

The demand for tobacco products, such as cigarettes and pan masala, is price inelastic, said the sources. As the duty was not revised in this year's Budget, the option is there. However, there is a technical glitch. The duty on tobacco has reached near the tariff-line level, and hence the Finance Ministry would have to seek Parliament's approval for any further increase.

However, hiking the duties of cars will not be that easy, said the sources. The automobile industry has been lamenting about the hard times, with sales growth slowing and costs rising.

But there are some suggestions, such as raising the duty on diesel-run and high-end cars. Small petrol cars could be spared, the sources said.

TAX TARGETS

Though the Finance Ministry is confident that it will meet the tax targets, there is severe pressure on resources. Owing to the lowering of duties on crude, petrol and diesel, the Ministry had estimated a revenue loss of Rs 24,000 crore (after deducting States' share of 32 per cent) for the remaining nine months of this fiscal. Now, with the falling price of the Indian crude basket, it is feared that the Customs duty collection may decline further.

In addition, the Government may have to provide additional subsidy on account of the Food Security Bill and to government-owned oil marketing companies. Even after the price hikes and lowering of duties, oil marketing companies expect to incur a loss of Rs 43,000 crore for the quarter ended June 30, 2011.