WTO norms spell trouble for cess on basic duty

NEW DELHI: Customs and central excise may get reprieve from the proposed cess, thanks to administrative difficulties.

Imposing cess on basic customs duty (BCD) would prove to be problematic particularly on products which have WTO bound rates. It would also be discriminatory to levy cess only on excise duty, said sources.

An allocation of Rs 1951.25 crore was made towards SSA in the ’03-04 budget against the revised estimate of Rs 1220.03 crore in ’02-03.

The new government is set to enhance it further in the Budget. One of the obvious options to meet extra fund requirements for education and even health is to increase the service tax rate. The government is set to raise service tax rate from the existing 8%.

Indications are that the rate may be raised to 12%. It has, however, chosen to maintain status quo on the Cenvat rate of 16%. Almost 90% of the commodities under the excise net attract the Cenvat rate. In the interim budget, the government had projected gross tax revenues at Rs 3,00,323 crore against the revised estimate of Rs 2,54,923 crore for ’03-04.

Collections from customs and excise were budgeted at Rs 53,000 crore and Rs 1,07,199 crore respectively. Projections in the interim budget were based on existing tax rates.

The estimates are set to be revised in the ’04-05 budget to be presented by the finance minister P Chidambaram on July 8. The government could always justify deferring the move to introduce a cess on indirect taxes, saying that the UPA’s commitment to raise public spending in education to at least 6% of the GDP is for the medium term.

The CMP makes it clear that this will be done in a phased manner.