constituted - of Planning Commission
constituted - of Planning Commission constituted - of Planning Commission
assumption for fixed collection rates is that the rates of customs duty prevailingin the base year would be maintained during the entire Twelfth Plan period.Central Excise: In the case of central excise duties, there is no observedcorrelation between the growth in the POL component of the excise base andthe GDP growth rate. For 2011-12 (BE), the POL component of excise duties isestimated at around 52 per cent of the budgeted excise collections andconsequently the Non-POL component comes to 48 per cent of the budgetedexcise collections. The rates of Central Excise Duty applicable to major POLproducts viz. petrol and diesel are specific (and not ad valorem). For the POLcomponent of excise duties, based on historical trends, a volume growth of 10per cent has been estimated year on year for the Twelfth Five Year Plan period.In case these specific rates are indexed year-on-year for inflation, the compositerates of growth taking into account both volume and rate increase would workout to 15.5 per cent. Owing to the fact that, historically, full indexation of rateshas not been undertaken, an average rate of growth of 12.75 per cent has beentaken for year-on-year growth in POL revenue. For the non-POL component ofexcise duties, the historical collections between 2003-04 and 2010-11 aregreatly skewed because of the changes in various excise rates including thestandard rate. In the wake of the global financial crisis in 2008-09 and as part ofthe fiscal stimulus, the standard rate of Central Excise Duty for Non-POL itemswas reduced from 14 per cent ad valorem to 8 per cent in two instalmentsbetween December, 2008 and February, 2009. This was retained at 8 per centduring 2009-10 and restored partially to 10 per cent only with effect fromFebruary 27, 2010. Going forward, the policy imperative is to align rates to thestandard GST rate, which is yet to be decided. Therefore, the current standardexcise rate of 10 per cent on Non-POL manufacturers has been taken as aconstant for projections for the Twelfth Plan period. This is projected to resultin a growth of 18 per cent, year on year, in the excise collections from non-POLmanufacture.Working Group Report on Centre’s Financial ResourcesPage-16
Service Tax: For estimation of service tax, it is observed that the historicalbuoyancy has been quite high but this was on a small base and in the period2003-04 to 2010-11, the statutory base has also expanded to include additionalservices on which service tax is to be levied. Consequently, the scope for futureincrease in the statutory base for service tax is limited. The estimates forservice tax have, therefore, been taken by frontloading the buoyancy, i.e. ahigher growth rate of 18.5 per cent (buoyancy 1.28) has been projected for2012-13 which tapers down to 14.5 per cent (buoyancy 1) in 2017-18, i.e., thefinal year of the Twelfth Plan period.Base line Projections:The tax-wise breakup of the projections is at Annexure-III. The resultant taxrevenue projections and tax-GDP ratios are reported in the Table 2.1.Financial year 2011-12Centre’s TaxRevenueCentre’s tax GDPratio(BE)Table 2.1:Overall Tax RevenuesProjection(` crore)2012-13 2013-14 2014-15 2015-16 2016-17930469 1087790 1285135 1516421 1774298 206279910.36 10.58 10.92 11.25 11.50 11.67Other Method ConsideredThe Group also considered other methods of estimating revenue; includingbuoyancies and elasticities in respect of key taxes. The buoyancy methodimplicitly assumes that there are little discretionary changes in the tax system.Instead of estimating buoyancy on the basis of actual data, the Groupconsidered the estimates using buoyancy assumptions for two major direct taxes- low (historical low in the last 5 Plans), high (historical high in the last 5 Plans)and a judgmental one used by the Group. Apparently the buoyancy is at theWorking Group Report on Centre’s Financial ResourcesPage-17
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assumption for fixed collection rates is that the rates <strong>of</strong> customs duty prevailingin the base year would be maintained during the entire Twelfth Plan period.Central Excise: In the case <strong>of</strong> central excise duties, there is no observedcorrelation between the growth in the POL component <strong>of</strong> the excise base andthe GDP growth rate. For 2011-12 (BE), the POL component <strong>of</strong> excise duties isestimated at around 52 per cent <strong>of</strong> the budgeted excise collections andconsequently the Non-POL component comes to 48 per cent <strong>of</strong> the budgetedexcise collections. The rates <strong>of</strong> Central Excise Duty applicable to major POLproducts viz. petrol and diesel are specific (and not ad valorem). For the POLcomponent <strong>of</strong> excise duties, based on historical trends, a volume growth <strong>of</strong> 10per cent has been estimated year on year for the Twelfth Five Year Plan period.In case these specific rates are indexed year-on-year for inflation, the compositerates <strong>of</strong> growth taking into account both volume and rate increase would workout to 15.5 per cent. Owing to the fact that, historically, full indexation <strong>of</strong> rateshas not been undertaken, an average rate <strong>of</strong> growth <strong>of</strong> 12.75 per cent has beentaken for year-on-year growth in POL revenue. For the non-POL component <strong>of</strong>excise duties, the historical collections between 2003-04 and 2010-11 aregreatly skewed because <strong>of</strong> the changes in various excise rates including thestandard rate. In the wake <strong>of</strong> the global financial crisis in 2008-09 and as part <strong>of</strong>the fiscal stimulus, the standard rate <strong>of</strong> Central Excise Duty for Non-POL itemswas reduced from 14 per cent ad valorem to 8 per cent in two instalmentsbetween December, 2008 and February, 2009. This was retained at 8 per centduring 2009-10 and restored partially to 10 per cent only with effect fromFebruary 27, 2010. Going forward, the policy imperative is to align rates to thestandard GST rate, which is yet to be decided. Therefore, the current standardexcise rate <strong>of</strong> 10 per cent on Non-POL manufacturers has been taken as aconstant for projections for the Twelfth Plan period. This is projected to resultin a growth <strong>of</strong> 18 per cent, year on year, in the excise collections from non-POLmanufacture.Working Group Report on Centre’s Financial ResourcesPage-16
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