Excise logs on to retail prices in India

On the excise front, the government has introduced another new window by ushering in retail sale price (RSP)-based assessment for computers and a number of other hardware items. This system is similar to the MRP-based assessment introduced earlier for pharmaceuticals, a host of consumer goods and food products. Instead of the factory gate price, the industry was asked to pay excise on the basis of MRP, thereby exerting pressure on trade margins. The MRP-based assessment also led companies to think twice before printing the price tag — a move which is expected to be consumer-friendly. The new RSP-based system covers printers, monitors, computer key boards, scanners, mouse, plotter, fax machines, modems and set-top boxes. The distribution channel for these items is different, and that was the reason for introducing an RSP-based framework, say tax experts. Central excise rate of 16% and service tax rate of 12% are unlikely to be merged into a unified rate of 14% in the near future. The government seems to be holding back the alignment for the impending introduction of a goods and services tax (GST) in 2010. Instead of amending both rates now, it’s a simpler option to let the convergence happen when GST is ushered in. Hopes of GST replacing excise, service tax and state-level VAT by 2010 have been revived with the central government and the states agreeing to work on a roadmap for the composite levy. Only two years remain before the scheduled deadline for introduction of GST, and the government is likely to wait till then, focusing on CST phase out in the interim. Besides taxing only the value-added, the GST may be friendlier to India Inc than the current structure of multiple taxes. While a cut in CENVAT to 14% is acceptable to India Inc for obvious reasons, there is resistance to a hike in the service tax rate to 14%. Fears of higher service tax incidence fuelling inflation could be another factor behind the excise-service tax alignment getting postponed. There was a lot of speculation before the 2007 Budget that the excise and service tax rates may be aligned.

Courtesy: EconomicTimes
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