It's going to be a steal for the sector. After the 5% cut in import duty, the government is set to lower excise duty on steel products from 16% to 8%. It is also looking at a reduction in the duty entitlement pass book rates and knocking off incentives for exports.
The revenue implications of both an across-the-board as well as selective duty cut on steel products have been worked out and a final decision is expected to be taken by PMO, government sources said.
While the steel ministry and users such as automotive manufacturers have pitched for a cut in excise duty, the government will have to factor in the revenue loss which is estimated at around Rs 8,000 crore for an across-the board cut in excise duty on all steel products.
Though the impact of an 8% excise duty cut on all products may not be much in this fiscal, a large chunk of the loss will have to be borne in the coming fiscal. The pros and cons are being weighed, given the commitment made in the Fiscal Responsibility and Budget Management (FRBM) legislation on reduction of fiscal deficit and elimination of revenue deficit. Buoyancy in tax revenues is crucial to achieve these goals.
The other option, which is being considered, is to restrict the excise duty cut to select steel products as was done in the case of import duties. The government reduced the Customs duty on hot rolled (HR) coils, cold rolled (CR) coils and other non-alloy steel from 20% to 15%. Duties on sponge iron, metcoke and pig iron too were slashed by 5%. At the same time, however, it did not tinker with the import duty on ferro alloys and stainless steel.
Although the reduction in customs duty is expected to benefit the auto and auto component industry, small scale sector and construction industry, most users say the impact in the short-term will be negligible. Indeed autocos say that the real impact of the duty reduction will kick in once the domestic steel companies realign their prices following the lower FOB value of imports.
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