Consumers get to save more taxes, but just; higher service tax to negate benefits

There was not much for consumers to cheer about as the Finance Minister did not tinker with the tax slabs, having done that a few months ago, but sought to boost disposable income through other means. However, with minimal downward revision of excise duty on some consumer products being more than negated by higher service tax, disposable income is unlikely to budge to any significant extent to give a demand push to the consumer sector.

“We were expecting a strong impetus towards domestic demand creation that can lead to growth of Indian manufacturing sector. Increase in service tax and excise duty will disincentivise consumption. Along with this, leaving the income tax slabs and rates unchanged is going to leave lesser money in the hands of the common man to spend on domestically produced goods and services,” Kishore Biyani, Group CEO Future Group, commented.

The key benefit to consumers comes from hike in tax exemption for media insurance premium. In addition a marginal increase in tax free transport allowance would also put some more money at the hands of the consumer.

However, the big hit is coming from the move to raise service tax to 14 per cent, which will lead to an increase in the prices of a wide range of services used by consumers like air travel, eating out and many more.

Some of the excise duty hikes such as those on cigarettes and tobacco-related products were done with public health in mind but that would also affect consumer prices of such products.

On the other hand, the Budget provided some specific reliefs such as on footwear with leather uppers and having retail price of more than Rs 1,000 per pair.

The products like camera phones may become cheaper as the excise duty rate on these products has also been cut.

On the education sector side, the Budget proposed to set up several higher educational institutions to expand the spread of its flagship institutions of learning. It has proposed to set up All India Institute of Medical Sciences (AIIMS) in Jammu and Kashmir, Punjab, Tamil Nadu, Himachal Pradesh and Assam besides a second AIIMS-like institute in Bihar, apart from setting up setting up IITs in Karnataka and upgrading the mining institute in Dhanbad to IIT status.

However, not much was said about the primary or secondary schools.

The FM snipped excise duty on a host of items, mostly inputs going into various products including consumer products such as mobile handsets, tablet computers, solar water heaters and systems, LCD/LED TVs, pace makers, microwave ovens, etc. How much of that is actually passed on the consumers is to be seen as the manufacturers have eschewed price cuts due to small inputs cost reduction in the past. Either ways it is unlikely to pump up domestic consumption.

(Edited by Joby Puthuparampil Johnson)

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