Focus on excise (1948-49)

Owing to the fragile position of foreign exchange reserves at the time of independence, R.K. Shanmukham Chetty shifted the focus to domestic industry for revenues in Budget 1948-49. To reduce this reliance on tax income from imports he expanded excise duty coverage.

The duty on motor cars was raised from 45 per cent to 50 per cent, with a preference of 7.5 per cent in favour of the United Kingdom. The yield from this increase was estimated at Rs. 50 lakhs

To start with, excise duty was levied on luxury items. Subsequently, coverage expanded to necessities such as tea, coffee, vegetable oil, tyres. Within ten years of independence, the number of items under excise more than doubled to 33.

Cigarettes, soaps, sewing machines and electric bulbs all attracted excise duties now. Budget 1957-58 proposed substantial increase in excise duty ranging from 30 per cent to 400 per cent. The next decade saw the number grow to 80.

Compared with 1937-38, the direct taxes would have increased eight and half times in 1948-49 while the indirect taxes would have increased only by a little over twice. I do not think that anyone could say that the burden of direct taxation in this country is unduly light or that there has been any shifting of the burden on the shoulders of the ordinary man: R.K. Shanmukham Chetty

It was 130 in 1975. Then, in 1975, in the Central Excise Tariff a residuary entry — ‘Tariff Item 68’ — was entered which covered all items other than those specified. This considerably widened the indirect tax base. Initially the rate of duty was a mere 1 per cent. The duty rate for ‘Tariff Item 68’ — a revenue mopping tool for successive Finance Ministers — reached 12 percent by 1985.

Focus on excise (1948-49)

India has had 25 finance ministers since Independence in 1947 who have presented and passed in Parliament 83 Budgets — both interim and annual — so far.