Click to play videoNew Delhi: The Central Government has come out with the latest stimulus package to revive the economy. In the latest move on Tuesday, excise duties and service tax have been cut by two per cent each.
After leaving tax rates unchanged in the Interim Budget, the government has gone for cuts in excise and service tax, in what is being seen as a final measure to perk up the economy before the election code of conduct comes into effect next week.
Stand-in Finance Minister Pranab Mukherjee on Tuesday announced further cuts in indirect taxes while replying to the debate on the Interim Budget in Parliament.
The reductions do not require parliamentary approval or amendment to the Finance Bill, unlike changes in income tax.
"It is another stimulus. I do hope it will have its desired impact because we have given some concession for the export sectors," Pranab Mukherjee later said.
The cut in service tax is across the board and should benefit exporters and software companies.
As for excise duty, only the 10 per cent rate that applies to most products has been cut to eight per cent. The four, 12 and 20 per cent rates are unchanged.
Truck makers will gain, but not car makers or two wheeler manufacturers as they are already in the eight per cent bracket.
"The cut which has been announced today was some thing new which will have to be factored into the Budget estimates as we go along. That was not factored in. What was factored in was the fact that four per cent reduction made earlier would continue," said Economic Affairs Secretary Ashok Chawla.
Cement manufacturers said there could be a reduction of Rs 3.50 per bag of 50 kgs.
The government has also specifically given incentive for reduction in bulk cement prices, to boost the construction sector.
Steel maker JSW said it would cut prices.
"The reduction of two per cent in excise duty and two per cent in service tax, if it is passed to the consumer and I believe that it can be passed to the consumer, will stimulate demand," hoped Home Minister P Chidambaram.
There is unlikely to be an across the board cut in prices. Fast moving consumer goods companies, for instance, might prefer to retain some of the gain, as there is strong rural demand.
But the government message is clear - cut prices, stimulate demand, operate at higher capacity and save jobs.
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