Further stimulus rollback likely
Rollback of excise duty likely in select sectors
The pre-crisis excise duty at 14% was cut to 8% after the fiscal stimulus, and currently stand at 10%. With strong growth in sectors like small cars and low inflation in man-made fibers, the rate may be raised to 12%. In large cars and UV also the excise duty may be raised
Likely rollback of service tax and including more services
The service rates was spared in last budget and looking at the strong growth in services coupled with 16% GST rates in future, service tax may be increased to 12%. This would also not impact the inflation as much as the excise duty increase. There may be inclusion of more services under service tax
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Further stimulus rollback likely
ReplyDeleteRollback of excise duty likely in select sectors
The pre-crisis excise duty at 14% was cut to 8% after the fiscal stimulus, and currently stand at 10%. With strong growth in sectors like small cars and low inflation in man-made fibers, the rate may be raised to 12%. In large cars and UV also the excise duty may be raised
Likely rollback of service tax and including more services
The service rates was spared in last budget and looking at the strong growth in services coupled with 16% GST rates in future, service tax may be increased to 12%. This would also not impact the inflation as much as the excise duty increase. There may be inclusion of more services under service tax
Customs duty on petroleum products may be reduced
With steep inflationary pressures building up in fuel items and rising subsidy bill, the customs duty on crude oil/petrochemicals/fuel products may be reduced/waived. The current duty rates are: crude oil – 5%, auto fuel – 7.5% and other petrochemicals – 10%
n Fiscal deficit to be under pressure
No bonanza revenues next year
The unexpected 3G bonanza of ~Rs.720bn had acted as a buffer to absorb a good part of the fiscal deficit in FY11. Come FY12, such unexpected deficit support is not foreseen. Fiscal deficit for FY12 is likely to spill over the target.
Subsidies to see an increase
We expect the total subsidy bills on food/fertilisers/fuels to go up by ~Rs800bn from the budgeted estimates. The petroleum subsidy would see a drastic uptick if the price of crude were to increase through FY12. This would undermine the ability of the government to tame the fiscal deficit and consequently inflation.
Price dependent subsidy burden Rs. Bn % of GDP
Oil price at $803610.51
Oil price at $904380.62
Oil Price at $1005110.73
Augmentation of revenues to be key thing
In such scenario, key thing to focus will be augmenting the revenues which may include
§ Raising excise duty/customs duty rates in few products
§ Raising service tax rate
§ Introduction of voluntary disclosure of income scheme