VAT a relief: Centre to make good states' loss

The FM has retained the Cenvat rate at 16%. He has announced major policy changes in the textile sector, and signalled the government’s move to integrate tax on goods and services. A 2% education cess will be levied on aggregate excise duties.

With states set to move to a VAT regime from next fiscal, the FM has also held out a promise to compensate states for revenue losses, if any, on transition. A new compensation formula will be worked out. States anticipate revenue losses as local taxes will be subsumed in VAT. A technical experts committee will be set up to advise the state governments.

The most significant policy change in the Budget is, of course, in the textile sector. The minister has abolished the mandatory Cenvat chain for the handloom and powerloom sectors. Other sectoral measures include increase in excise duty for non-alloy steel from 8% to 12%, but with an excise duty cut. He has also raised excise duties on 11 items from 8% to 16%, to bolster revenues. But general SSI exemption will be available on these products.

The 2% cess on aggregate excise duties would yield an extra Rs 1,500 crore. The duty incidence will be 16.32% for an item which attracts Cenvat at 16%. The cess will be available as credit, on the final product.

The three tier duty structure of 8%, 16% and 24%, except for petroleum and tobacco products, pan masala and products attracting specific duty rates, continues. There is no change in excise duties on tyres, aerated soft drinks, PFY, air conditioners and motor cars, from the existing 24%.