The government may revert to pre-slowdown Indirect Tax rates in two phases beginning April as the government weighs likely harm to the ongoing economic recovery if a rollback is done at one go with the urgent need to move towards greater fiscal prudence.
A suggestion to undertake a partial rollback figured in the first round of pre-Budget consultations between Prime Minister Manmohan Singh, finance minister Pranab Mukherjee and other policymakers recently told a senior official.
The government had cut the Cenvat rate, or the median excise duty rate levied on nearly 90% of goods manufactured, to 10% from 14% in December 2008 and by another 2 percentage points to 8% in the interim budget in February 2009. The service tax rate was cut to 10% from 12%.
With the economy now on a firmer footing and industrial output growth strong, officials are looking to roll back the measures taken as part of the fiscal stimulus to shield the economy from the global recession. While those measures helped realise the primary goal, they pushed fiscal deficit to a 16-year high of 6.8% of the GDP.
The first round of hike in Cenvat and service tax rate is likely in the forthcoming Budget, said the official. The second phase is yet to figure in the discussion.
