Though difficult, the effort in the ministry is to restructure the levies in such a way so that Sinha may emerge as the hero of the indirect tax rationalisation as his predecessor P Chidambaram was to the direct taxes.

The exercise is difficult as indirect taxes structure is much more complex and revenue realisation is twice than that of direct taxes. Hence any misadventure will be difficult to bear. However, the question being asked is when Chidambaram could prove the prophets of doom wrong by his bold measures, why can't Sinha?

Having been moderately successful in removing the veil of secrecy enveloping the budget making exercise, Sinha himself told the industry that he was trying to reduce the excise rates to three from currently 12. According to Sinha, theministry was working on three rates namely mean rate, merit rate and demerit rate. He added that certain principles were being evolved and goods would be classified accordingly. Thereafter it will be difficult for the interest groups to lobby for better rates and secondly the problem of classification will be resolved to a great extent if not completely eliminated.

The minister, however, did not talk about the rates for the three categories of excise duties. According to informed sources, the rates being contemplated are 8 per cent, 15 per cent and 30 per cent. The rate structure, if approved, will help certain industries while the others may be adversely effected.

Interestingly, the chambers have indirectly expressed their reservations about such a move. The pre-budget memorandum though took note of the desire of the minister, but wanted the government to reduce the excise rates to six and not three. The rates suggested by CII include 0, 5, 10, 15, 20 and 30. The CII also wanted that the average rate ofexcise be brought down from 18 per cent to 15 per cent.

What is significant is that in the finance ministry's scheme of things there will be no place for zero duty. Sinha, in case of customs duty, had also indicated that in principle he was against zero duty import. Although the same be more difficult to do away with in case of excise because of various pressures and lobbies.

However, as it is impossible for the government to bring down the average rate of excise from an estimated 18 per cent in view of revenue considerations, the option is to bring down the peak rate and improve the base rates to streamline the structure and concentrate on volumes.

The other task facing the finance ministry will be to levy duties on everything on the sale price. For instance, duty on cigarette currently is per 1000 stick and not on the sale price. In the new regime, goods will have to levied on price and not per pieces. The experience gained on levying duties on maximum retail price will help in transforming to the newstructure.

Apart from fixing rates of three duties, the finance ministry is also working on improving the procedural problems to prevent misuse of Modvat provisions. Although the industry has been suggesting that the restriction of Modvat to 95 per cent with withdrawn, it is unlikely that the ministry will agree to it this year.