No Revolutionize During Eliminate Income Tax - July 10, 2009

With the meager monsoons in the large parts of Northern India, the government has put on hold, the review of excise as well as service tax rates. Many were watching closely about this decision. In this year''s budget, there is no rollback on excise and service tax rate cuts and that could be the way Pranab Mukherjee keeps it all year.

As per the sources, the worries of a poor monsoon are likely to spook all plans to hike excise and service tax rates later in the year. There were indications that both taxes may be reviewed in September-October.

However, to bridge shortfall of the indirect tax revenue, the finance ministry was initially keen to increase the Central Excise rate to10 per cent from 8 per cent.

The view of the government is based on the premise that a poor monsoon is expected to hit hard on the goods demand, especially in rural India and under these circumstances, a correction in the mid fiscal in indirect tax rates could be counter productive.

The monsoon factor could depress the revenue collections and there could be shortfall of indirect tax due to depressed sales and unchanged of central excise and service tax. The indirect tax collections between April-May are already a negative, that is, 28 per cent.