|Speech of Shri
Finance Minister, Government of India
27th February, 1999
58. Sir, I now present my tax proposals.
59. I will start with indirect taxes, with excise first. The multiple rates of indirect tax are generally recognised to be a major source of misclassification, tax evasion and avoidance and cumbersome litigation. The multiplicity also encourages inefficient allocation of resources. Over a 100 countries in the world now enjoy the benefits of a Value Added Tax (VAT) with very small number of rates in each case.
60. In my last Budget, I had clearly stated my resolve to rationalise the rate-structure so as to reduce the multiplicity of rates and ensure convergence towards a central rate with a merit rate and a demerit rate. Most of our major industry associations have also called for a triple rate excise structure.
61. My excise proposals today largely fulfil my intent announced 9 months ago. Specifically, I propose to reduce the existing 11 major ad valorem rates to 3, namely, a central rate of 16%, a merit rate of 8% and a demerit rate of 24%. To achieve this, I propose to:
62. Considerations of revenue in this difficult year, however, persuade me to fix 2 slabs of surcharge (special duty of excise) of 6% and 16% over the rate of 24% on commodities which today carry a rate of duty of 30% and 40%. Thus total excise on these commodities will remain unchanged. Petrol will continue to be taxed at 32%. The surcharge structure gives a clear indication that in future the Government would gradually phase them down to the demerit rate of 24%.
63. As a result of these changes the excise rates for many commodities will either come down, or remain unchanged or be adjusted marginally upwards by a 1% point. In the one major area of machinery and capital goods where the basic rate is rising from 13% to 16%, I must point out that excise on such products are eligible for MODVAT credit in the hands of the buyer. Furthermore, to help the capital goods sector, my customs duty proposals include removal of the long standing anomaly by which the duty rate on the major input, steel, is higher than the duty rate on finished capital goods. I must also emphasise that this major reform of the excise rate structure is broadly revenue neutral. It does not impose additional tax burden on industry as a whole. I am confident this major reform will stimulate productivity, growth and employment.