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Rediff.com  » Business » Hike in excise duty and MAT

Hike in excise duty and MAT

March 02, 2011 12:00 IST
New income tax slabs will bring relief to the middle class. The exemption limit for the general category of individual taxpayers increased from Rs. 1.6 lakh to Rs. 1.8 lakh this year. This measure will provide a uniform tax relief of Rs. 2,000 to every taxpayer of this category.

The increase in central excise duty from 4 per cent to 5 per cent on items such as prepared foodstuff like confectionary, pastry and cakes, starches, paper and articles of paper, textile intermediaries.

The withdrawal on exemption of 130 of items that are mainly in the nature of consumer goods from central excise duty and remaining 240 items would be brought into the tax net when GST is introduced.

Ready-made garments and made-ups of textiles, which are under optional excise duty regime, have changed to into a mandatory levy at a unified rate of 10 per cent. The levy would apply only to branded garments or made-ups and not to those tailored or made to order for a retail customer.

Further, credit of tax paid on inputs, capital goods and input services would be available to manufacturers of these products. The excise duty levy on branded ready-made garments will be based on retail sale price, with abatement of 40 per cent. That means, the excise duty will be levied at 6 per cent (10 per cent on 60 per cent) of the retail sale price.

The full exemption of basic customs duty on Crude Palm Stearin used in the manufacture of laundry soaps to promote laundry soaps which conserve water.

Reduction in basic customs duty on bamboo for agarbatti from 30 per cent to 10 per cent.

Minimum Alternate Tax hiked from 18 per cent of book profits 18.5 per cent.

MAT imposed on developers of Special Economic Zones as well as units operating in SEZs.

Industry Expectations:

Grant Industry Status for retail industry: Not fulfilled

Opening FDI for the retail industry: Not fulfilled

Introduction of 100 per cent tax deduction on expenditure incurred on employment of new workmen and weighted deduction for payment made by retailers towards training and development of their personal: Not fulfilled.

Permission to operate 24*7 and revision of labour laws: Not fulfilled

Create a single window clearance: Not fulfilled

Tax breaks for rural/remote area outreach initiatives: Not fulfilled

Budget Impact:

The exemption limit for the general category of individual taxpayers increased from Rs 1.6 lakh to Rs 1.8 lakh will increase the liquidity in low-income people, which may boost consumption.

However, the marginal increase in Central Excise duty from 4 per cent to 5 per cent on items such as prepared foodstuff like confectionary, pastry and cakes, starches, paper and articles of paper, textile intermediaries and with draw of excise duty for the 130 items mostly consumer goods may increase the prices of food, notebooks, consumer goods and clothes.

Further, ready-made garments and made-ups of textiles, which are under optional excise duty regime, have changed into a mandatory levy at a unified rate of 10 per cent (effectively 6 per cent, factoring in 40 per cent abatement) results in increase of prices branded apparels. This may be the big set back for the industry as the rising inflation coupled with the further rise in prices may dampens the consumption.

In addition, MAT on developers of Special Economic Zones as well as units operating in SEZs indirectly hurt the growth of industry. So, most of the industry expectations are not considered and new taxes come into picture. So impact of Union Budget 2010-11 on retail sector is negative.

Scrip to Watch:

Pantaloon Retail, Shoppers Stop

Outlook:

The change in the slabs rates of personal income tax will increase the liquidity with middle-class people, which will boost the consumption.

However, the increase in central excise duty from 4 per cent to 5 per cent on few food items and withdraw of exemption of 130 items mostly consumer goods may hit the industry as the rising inflation is already concern of the industry.

In addition, change in optional levy to mandatory levy may of ready-made garments and made-ups of textile hurt the fashion and apparel industry. Further, the grant of infrastructure status or allowing FDI into retail industry would have increased the pace of growth in the retail industry. Overall, the impact of budget on retail is negative.

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