Excise duty hike on cars, tobacco coming this week?

Concerned over the expected shortfall in tax revenues, the Finance Ministry is likely to take a call on revising excise duties on cars and tobacco-related products this week. Excise duty on both the products was not revised in the Union Budget this year. A highly-placed official source told Business Line that “various suggestions have come on this (revising the excise duty), but no final view has emerged. The Finance Minster is expected to decide once he is back from the UK.”

However, sources said that the task was not an easy one. As the rate of growth of manufacturing and capital goods is on a decline, any duty hike would affect demand, they said. There is also the fear of a fall in investment demand. The demand for tobacco products, such as cigarettes and pan masala, is price inelastic, said the sources. As the duty was not revised in this year's Budget, the option is there. However, there is a technical glitch. The duty on tobacco has reached near the tariff-line level, and hence the Finance Ministry would have to seek Parliament's approval for any further increase. However, hiking the duties of cars will not be that easy, said the sources. The automobile industry has been lamenting about the hard times, with sales growth slowing and costs rising.