UNIONBUDGET 2011-12: INDIRECT TAX SNAPSHOT

The indirect tax
proposals under the Union Budget 2011-12 are aimed at taking forward the path of
fiscal consolidation without adversely affecting  economic growth, achieve
improvement in tax – GDP ratio by expansion in tax base, removal of exemptions, 
moderation of tax rates, reduce complexities in tax system and encourage
voluntary compliance.

In terms of reform
process in Indirect Taxes, the Finance Minister while being non committal on
timing and roll out of Goods & Service Tax (GST), hinted that his mind to
bring in constitutional  amendment bill in the current session of the
Parliament. The fact that proposed indirect proposals are targeted towards
moving close to harmonies with GST regime in the future is good signal in this
direction.

Some of key indirect proposal are
summarized below:

Central
Excise:

• Enhancement in the merit rate of
  Central Excise from 4% to 5%
• Expansion of the tax base through
• Imposition of a nominal duty of 1 % ad valorem on about 130 items that
  were hitherto exempt or chargeable to nil rate of duty without CENVAT
  credit
• Imposition of mandatory excise duty of 10% on ready made garments
  bearing or sold under a brand name
• Rationalization of rate structure
  on paper and availability of CENVAT credit to ship-breaking units )

Customs:

• Enhancement in export duty on iron
ore at a unified rate of 20% for both lumps and fines

• Rationalization of customs duty
rates of 2%,2.5% and 3% to the median rate of 2.5% as well as the rate structure
for aircraft

Service
tax:

• Levy of service tax on accrual
  basis rather than cash basis
• Imposition of service tax on a few
  more service categories
• Rationalization in the scope
  of many existing service categories such as insurance, banking and
  financial services, health services, commercial training and coaching,
  clubs or associations etc.
• Rationalisation in the
  valuation provisions and import rules; and
• Ratonalisation of the CENVAT
  Credit scheme provisions especially with regard to the apportionment of credit
  between dutiable/taxable and exempt goods or services.

Click here to download a
detailed analysis of indirect tax proposal in the Union Budget 2011-12.