It is possible that government might take the initial step towards fiscal consolidation in Budget of 2010-11 by partly withdrawing the tax cuts introduced to the industry last year to help the industry. The service tax rate might go back to 12% while excise duty may be hiked slightly. The finance ministry is thinking about a staged exit of the stimulus steps as the economy recorded to a strong 7.9% growth in July-August quarter of 2009-10.
Initially it wants to revoke steps that won’t affect the industry much, like the 2% cut in the service tax. For the excise duty, the hike might not equal the 6% rollback that was given to the industry as a portion of the stimulus steps.
These budgetary changes might also be used as a stepping stone to reduce indirect taxes to pave way for the introduction of the goods and services tax (GST).
The government sources said all the alternatives were being looked into and an ultimate decision would be taken by Finance Minister Pranab Mukherjee after consulting Prime Minister Manmohan Singh. Mukherjee also took inputs from members of the Parliamentary Consultative Committee today.
Also the government is examining if it should hike excise duty for particular sectors that are showing signs of recovery or slightly increase the rate for all the sectors to avert inequity. It might also opt for including more services under the service tax net.
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