SERVICE TAX, EXCISE DUTY SLASHED 2%

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CHEAPER housing, TV sets, phone bills, visits to the beauty parlour. Such is the consumer bounty arising from the third fiscal stimulus package announced by the government in the form of Rs 30,000 crore worth of cuts in service tax, excise duty and countervailing duty on imports. This package is likely to be followed up with interest rate cuts by the central bank.

Products that attracted 10% excise duty will now be taxed at 8% while service tax has been reduced 2% across the board to 10%. The Customs duty exemption on naphtha imports for power generation has also been extended beyond March 31, 2009. The stimulus package, the third in a row after those announced on December 2 and January 7, came as part of acting finance minister Pranab Mukherjee’s reply to the debate in Parliament on the interim budget presented on February 16. These rate cuts, as well as the 4% excise duty cut announced in December, will continue beyond March 31, as well. Lok Sabha passed the interim budget after Mr Mukherjee’s reply to the debate.

Ninety per cent of manufactured goods that attract an excise duty of 10% at present, including colour TV sets, washing machines, refrigerators, soap, detergents, cola, hybrid cars and commercial vehicles, are expected to become cheaper as a result of the excise duty cut. Phone bills, airline tickets, credit card charges, insurance premia, tour packages etc will also cost less, thanks to the cut in service tax rates. The cess on health and education will also come down, as these are levied as a proportion of the total price, including the indirect taxes that have now been reduced.

The reduction in service tax will serve the twin objectives of giving relief to the service sector that constitutes 50% of the country’s GDP and the move towards the unified goods and service tax regime, scheduled to kick in from the next fiscal.

In December, the government had slashed median excise rates by 4% while announcing a Rs 20,000-crore additional spending plan to boost economic activity. Special packages were also announced for textiles and handicrafts.

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