Pan masala, gutka to cost more as govt raises duty.

NEW DELHI: Pan masala, gutka and several other tobacco products that are sold in pouches are set to get expensive as the government on Monday increased excise duty in a last-ditch effort to boost revenues.

A statement issued by the finance ministry did not specify the extent of increase in excise but said the levy will now be linked to the capacity of production, which has increased due to an increase in packing machines. The statement said that apart from gutka and pan masala, chewing tobacco, unfiltered 'khaini" and unmanufactured tobacco that are sold in packed pouches also face higher taxes. The increase in tax is expected to be passed on to the consumer, and prices will rise immediately. The finance ministry has, however, opted not to increase taxes on cigarettes, at least for the moment.

The government has also decided to impose a 5% export duty on iron ore pellets in its latest bid to increase domestic use of the mineral to generate more processing within the country. The move, the ministry said, was initiated "considering the domestic requirement of iron ore pellets", indicating that there was a shortage of sorts for local manufacturers.

The government had earlier imposed an export duty of 30% on iron ore fines and lumps but decided to expand the ambit of the levy, citing the sharp rise in the export of pellets during April-November 2013. The fresh levy will reduce the margin of Rs 1,500-2,000 a tonne by around Rs 500 a tonne, which will check exports, industry players said.

Economists, however, said the twin hikes, weeks before finance minister P Chidambaram presents an interim budget, came due to a shortfall in tax revenue. The move is expected to help the government mop up Rs 600-700 crore.

With little hope of the economy picking up momentum in the remaining two months of the current fiscal, the government has revised its estimates for indirect tax collection lower than the budget projections. The shortfall is expected to be upwards of Rs 50,000 crore.

Sources in finance ministry said that in the first nine months of the current fiscal up to December, the shortfall in indirect tax revenue as per estimates was already more than Rs 40,000 crore. After this, the Central Board of Excise and Customs was considering to initiate measures to stop the decline in collection. Among steps being considered was to go slow on handing out duty drawbacks to exporters, increasing scrutiny and anti-evasion measures and emphasis on recovery of tax arrears. Chidambaram, who was speaking on the occasion of International Customs day here, asked customs and excise officials to better the revised estimates. "While revised estimates have been lowered than budget estimates, but going by the trend I urge you to do better than the revised estimates and show what you are capable of," the FM told revenue officials.

The FM was referring to the customs revenue showing a higher growth rate in December, a little more than the projection made in the revised estimates. The customs duty increased by 6.7% in December, but still far behind the asking rate of 14% to meet the budget target.

The budget estimates for indirect tax for the current fiscal had been set at Rs 5.7 lakh crore, which was 20% more than last year's Rs 4.7 lakh crore. However, according to revenue collection till December, the growth in indirect tax is around 6%. Excise duty receipts in the April-December period has actually contracted compared to the same period last year.

Source : timesofindia.indiatimes.com