Govt starts rolling back stimulus, raises excise duty by 2%

The government on Friday hiked excise duties by 2 per cent to 10 per cent on all non-oil products as part of withdrawal of stimulus measures with Finance Minster Pranab Mukherjee saying the economy was on the recovery path.

Excise duty was cut by six per cent in two phases since December 2008 from a peak of 14 per cent earlier to perk up the economy, which came under the impact of deepening financial crisis.

However, Mr. Mukherjee, in the Budget for 2010-11, retained service tax at the level of 10 per cent.

The tax was cut by two per cent from 12 per cent as part of stimulus.

The tax proposals will pave the way for introduction of Goods and Services Tax by levelling both excise duty and service tax to 10 per cent.

Interestingly, the increase in excise duty came on a day when economic growth slips to six per cent in the third quarter from stunning 7.9 per cent in the preceeding quarter of this fiscal.

As a result of partial withdrawal of stimulus measures, the government would stand to gain about Rs 46,500 crore from changes in the indirect taxes, mainly excise.

On other hand, Mr. Mukherjee announced major direct tax sops including income tax concessions, which will result in a revenue loss of Rs 26,000 crore.

Besides, Mr. Mukherjee hiked excise duty on petrol and diesel by Re one a litre, a move that would make the motor fuel costlier.