Budget 2012: government mulls hiking excise rate to 12%

The finance ministry is considering a hike in excise duty from 10 per cent to 12 per cent, which would still be lower than the level before the 2008 financial crisis, according to a report.

Such a move would push up the cost of almost all manufactured goods, from food products to consumer durables and automobiles.

While a rollback of the fiscal incentives was expected in the last budget, finance minister Pranab Mukherjee surprised the industry and the market by sticking to a 10-per cent standard rate of central excise in order to support the manufacturing sector.

Although a final decision is yet to be taken, sources in the government indicated that the move has been necessitated by a tight fiscal situation, which is expected to persist during the next financial year with the government in no position to prune the high subsidy bill, says a Times of India report.

Decisions on changing key direct and indirect tax rates are taken by the finance minister in consultation with the prime minister. Officials in the ministry have argued that should the economic condition deteriorate, the government can always reduce the duty.

Through the current fiscal, officials in the Central Board of Excise and Customs were ruing the fact that Mukherjee chose not to increase rates in the last budget, when the economy was healthier, says the report.

Another argument being put forward is that the overall economic sentiment, although subdued, is better than what it was a few months ago. With inflation now coming down, interest rates are expected to start falling during the course of 2012-13. That is expected to boost sentiments, officials said.