Section 2
Indirect Taxes and You
Indirect taxes levied by the government are an important revenue stream for it. Indirect taxes are collected from someone other than who earns the income. The rate is uniform, irrespective of your income level. India is experiencing a high DGP growth of more than 8 per cent per annum ever since 2003-04 (growth rate for 2007-08 is projected at 8.7 per cent). Though the country is witnessing a strong investment growth, consumption demand is showing sings of a slowdown. In order to rectify this, Budget 2008 has focused on increasing consumption through reduction in duties. This will give greater purchasing power to the masses assuming that the manufacturers would pass on the benefits of reduction in the rate cut to the ultimate consumers.
HIGHLIGHTS OF PROPOSED CHANGES IN BUDGET 2008-09
CENVAT
CENVAT is an indirect tax levied and collected on all goods manufactured in India. Formerly, known as Central Excise Duty this tax is now known as the Central Value Added Tax (CENVAT). Under CENVAT, manufacturers can offset the duty payable on the goods manufactured against duty already paid on the materials used in the manufacturing process.
Budget 2008 has proposed the following changes:
CENVAT rate on all goods to be reduced from 16 per cent to 14 per cent. This rate cut implies that the prices of consumer durable goods like ACs, is likely to come down. This will lead to a higher savings for the consumers and an increased demand for consumer durable goods.
- Duty on small cars and hybrid cars to be reduced from 16 per cent to 12 per cent and from 24 per cent to the general revised rate of 14 per cent, respectively.
- Duty on two wheelers, three wheelers and buses carrying passengers more than 13 to be reduced to 12 per cent from the earlier 16 per cent.
- Duty on all goods produced in pharmaceutical industry to be reduced from 16 per cent to 8 per cent. This will lead to an overall reduction in the cost of health care and an increased profitability for the pharmaceutical companies.
- Anti AIDs drugs and bulk drugs to be exempt from duty. This will lead to a price reduction of these drugs.
- To enhance the internet and broadband usage in the country, excise duty on wireless data modern cards to be abolished. This will lower the price of data cards by 16 per cent. Wireless data cards enable consumers to access internet without having to take a telephone connection. Lowering of duty will reduce the cost of accessing internet to some extent.
- Duty to be reduced or removed on several processed food items. Breakfast food items such as corn flakes, sharbat, coffee and tea pre-mixes and pack-aged tender coconut will now cost less.
**** Cost of consumer durable goods to come down….
**** Wow, The cost of health care may come down….
**** Several breakfast food items may now cost less….
Import duty
There is no change in the peak import duties, which remains untouched at 10 per cent. The main reason cited for is the recent appreciation of the rupee in terms of other major currencies, which has led to imports anyways becoming cheaper.
The FM indicated that a rate cut might increase competition for domestic companies.
Central sales tax
Central Sales tax is levied when there is sale of goods in between two states it is unusually set as a percentage on the sale price of the goods. Budget 2008 proposes to reduce the central sales tax rate from 3 per cent to 2 per cent. Such reduction in tax rate implies marginal reduction in the prices of the goods.
The Budget has also mentioned that a road map was being prepared to implement Goods and Service Tax (GST) by April 1, 2010. By then, the central sales tax would be phased out. The main advantage of GST is that it will remove ill effects of double taxation. Implementation of GST would lead to lowering of prices, which in-turn would lead to a higher disposable for the consumers thereby stimulating increasing demand….
Service Tax
Presently, the services sector has become one of the important sources of revenue to the government, as it now contributes roughly 55 per cent of the GDP.
Keeping this aspect in mind, the service tax net to be extended to include four more services. They are:
- Asset management service provided under ULIP
- Services provided by stock/commodity exchange and clearing houses
- Supply of goods without transferring right to possession and effective control;
- Customized software services (to bring it on par with packaged software and other IT services).
The inclusion of the above services within the tax net implies higher out-flow of cash in the form of service tax on availing of such services.
SUMMARISING
The FM has chosen to provide continuity and stability on the indirect tax front rather than proposing any sweeping changes. He aims to boost economic growth through fiscal measures such as indirect tax cuts. This budget is considered as a “balanced budget” because on one hand, it takes care of maintaining the growth momentum and, on the other, ensures that the rural economy keeps pace with the rest of the economy.
**** The increase in the threshold limit of exception in case of service tax will reduce our tax liability…
**** FM has chosen to provide continuity and stability on the indirect tax front…. |
