Budget may prune excise exemptions

The finance ministry is looking into the possibility of phasing out some exemptions from the Centre's excise list in the next Budget.

The move is part of the transition exercise to the goods & services tax regime, slated to come into force next financial year.

The Union government currently exempts around 350 goods from excise duty.

Under GST, such exclusions will cease to exist, except for 99 items that are also on states' value-added tax exemption list.

"Some of the exemptions will have to be phased out even before GST is introduced. We will review the exemptions in the Budget and some of those may go," confirmed a finance ministry official.

Another ministry official concurred, saying, "We might look at something in the Budget."

He added that initially, most exempted items would attract a lower rate of 12 per cent or less under GST, because it would be difficult to immediately tax them at 20 per cent -- the highest rate proposed by the Centre.

Sugar confectionery, ice-cream, non-alcoholic beverages, yeast, sauce, ketchup, soups, ores, gold concentrates for refining, bio-gas, silicon, drawing ink, tooth powder, newsprint and notebooks are some of the items that could be taken off the exemption list.

Whereas, items such as milk, books, salt, wool, fruits & vegetables are exempted by the Centre as well as many states.

The finance ministry may also bring some services under the tax net in the Budget. It had slapped a tax on eight new services in the last Budget.

Services contribute around 60 per cent to GDP, but only 10 per cent of the tax comes from this sector.

Asked whether the government should phase out some exemptions in the Budget, C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, said, "Some action could be taken as a prelude to the introduction of GST. But some necessary changes should come only at the point when GST is introduced."

He added that the government should come up with a definition of services and bring more of these, such as transportation (including railways) under the purview of this definition.

A joint group of the Centre and states will work out a list of items to be exempted under GST. Apart from the common exempted goods, the government may also exclude some items such as foodgrain.

While the empowered committee of state finance ministers has approved a value-added rate of 4 per cent on foodgrains, many states exempt rice and wheat from tax.

The panel had suggested that the states' exemption list should continue under GST, while the task force of the 13th Finance Commission had suggested only five exemptions: public services such as civil administration, defence and police; employer-employee transactions; unprocessed food sold under the public distribution system; education services by non-governmental bodies; and health services by non-governmental agencies.