NEW DELHI: Indian manufacturers may have a “tendency” to evade excise taxes, which are the most “troublesome” of all levies to apply, Finance Minister Palaniappan Chidambaram said.
The collection of excise taxes, or levies on finished products before they leave a factory, should reflect manufacturing growth, Chidambaram said. Evading taxes doesn’t pay in the long run, he said.
India’s excise tax collection may fall short of the target set for the year ending 31 March, as per the budget document for the next year. The government’s revenue is rising from higher collection of import duties, service tax and income tax, and resulting in the tax to gross domestic product ratio increasing to an estimated 11.4% in the current fiscal year from 9.2% in the year ended 31March, 2004.
“There is considerable amount of duty evasion and I urge manufacturers to pay excise duty,” said Chidambaram. “There is no reason to avoid central excise. Central excise remains the laggard of our taxes.”
The government expects to collect 1.17 trillion rupees ($26.3 billion) in excise taxes in the year ending March 31, compared with a budget estimate of 1.19 trillion rupees. It has set a target of 1.3 trillion rupees in the year ending 31March, 2008.
“When the economy is growing close to 9% and manufacturing is growing at double digit, surely the central excise must grow at the same rate,” said Chidambaram.
Chidambaram expects Indian economy to grow at about 9 % for a third successive annual period in the year starting 1 April.
Chidambaram in his budget for the year starting 1April, has set aside more money to be spent on expanding the irrigation network, subsidizing fertilizers, covering more villages for providing education and increasing the reach of public health care. It is counting on higher revenue to narrow the fiscal deficit to 3.3% of GDP next year.
India’s companies will continue to grow, Chidambaram said. The budget for the next year seeks to give thrust to agriculture, which accounts for about a fifth of the economy, he said.
A medium-sized business in India has to make 59 tax payments totaling 81% of commercial profits, the World Bank said in a study titled “Doing Business in South Asia 2007” last month. In Hong Kong, the taxes that a medium sized business needs to pay each year is one income tax and a fuel tax totaling 29% of commercial profits, the study said.
The government may exceed the service tax collection target set for the year ending 31 March, 2007, Chidambaram said. India has budgeted for 345 billion rupees in service tax in the current fiscal year.
The finance minister also said there is “no reason to believe” inflation won’t be moderated. Easing supply constraints will help curb inflation, he said. The mismatch between supply and demand can only be resolved by increasing farm production, the minister said.