Raised service tax to avoid cascading effect of GST: FM

Justifying the hike in service tax and excise duty by 2 percent in the Union Budget 2012, Finance Minister Pranab Mukherjee today said it was a necessary move to ensure smooth transition towards the implementation of an all-encompassing Goods and Service Tax.

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In order to avoid the cascading effect of GST, it is necessary to raise taxes to align it with the proposed Goods and Services Tax. He, however, lamented that he could not take certain hard measures due to the absence of political consensus.

He made it clear that the UPA does not have a clear and absolute mandate, and in order to get back towards a high growth trajectory it is essential to arrive at a consensus.

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Admitting that the finance ministry did not adequately provide for investment in Budget 2012, Mukherjee said the government needs to boost investment to push up demand but at the same time it cannot ignore the economic crisis in Europe and Japan.

Reiterating that India’s tax laws are transparent and fair, Pranab Mukherjee said the government will not reopen cases beyond six years and that it doesnt have any vindictive attitude towards Vodafone.

Even though the excise duty has been raised, it is still below the pre-crisis level and the government had to sacrifice Rs 49,000 crore by providing for subsidies for fuel. The finance minister further said that rising crude prices will reflect on India’s inflation and if crude rises to $150-200 per barrel then imports will be hit. The FM has asked the oil ministry for profit details of upstream oil companies.

Talking about agriculture, Pranab said green revolution has resulted in 7 million additional tonnes of rice production, which is why he has further raised the allocation for it in Budget 2012.