Budget 2012: What the budget could do for indirect taxes

Move towards GST

Though the government will take more time to build consensus on the Goods and Services Tax (GST), the budget could move in that direction to ensure a smooth switchover when the regime is rolled out.

Raise duty on gold

The government had recently increased the import duty on gold and silver, and also shifted from a specific duty to one levied as percentage of imports. At present, 2% duty is levied on imported gold. Given the high demand for gold, which is considered consumption, the duties can be raised moderately to discourage buying but not too high to revive smuggling of gold. This will also help cut current account deficit.

Rationalise customs duty

In the budget for the current year, finance minister had rationalized the Customs duty structure, replacing the multiple duties with a neater threeslab structure. The rationalization could continue in the current budget and it could also address the inverted duty structure in some of the industries.

Raise excise and service tax rates

The Centre had cut excise and service tax rates when the global financial crisis shook Indian economy to stimulate demand. Though the strategy worked in ensuring quick bounce back, the delay in rolling back the stimulus created inflation problem that has forced severe monetary tightening. The fiscal policy needs to be more neutral, in sync with monetary policy. And also yield more revenues for government struggling with a high fiscal deficit.

Increase duty on crude

The government had removed duty on imported crude to soften the impact of rising international prices on already high inflation. With inflation showing signs of easing, the duty could be restored to raise revenue for the government. The oil companies should be allowed to pass on the impact so that subsidy burden does not rise.