The finance ministry is considering bringing the majority of items to the median rate of 16 per cent as part of excise reforms. It is also planning to increase the service tax to 12 per cent from 10 per cent now.

While exemptions would be curtailed to remove the distortions in the excise duty structure, items falling in the 24 per cent and 8 per cent slabs should be covered under the Cenvat rate of 16 per cent, ministry officials said.

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The officials, however, said discussions were under way and a final view was yet to be taken. "We have to consider the revenue implications. But the general approach is to have a downward revision," an official said.

On service tax, some North Block officials were of the view that it may be difficult for the government to increase the rate immediately as the last revision, from 8 per cent, was undertaken in July 2004.

In case the ministry decides to go ahead with the rate increase, a threshold turnover for exemption from payment of service tax could be considered.

Though a cut in the peak rate could increase the pressure on the treasury, there was also a view that lower tax slabs would increase compliance and, thereby, revenue.

Excise has been a cause of concern for the government this fiscal year with a shortfall of around Rs 6,000-7,000 crore (Rs 60-70 billion) from the budgeted estimate of Rs 1,09,199 crore (Rs 1091.99 billion).

Tax experts contend a revision in the excise duty rates and a marginal increase in the service tax rate are possible this year. This will be in tune with the government's plan to have a comprehensive tax on goods and services.

The experts said there was a wide divergence between the Customs, excise and service taxes. While the peak Customs duty was 20 per cent, the peak excise rate was 24 per cent and the service tax 10 per cent.

If the peak Customs duty were to be reduced to 15 per cent, as is expected, the peak excise rate should also be reduced too, a tax expert said.

Taxman cometh

Cut and carry view Though a cut in the peak rate could increase the pressure on revenue, lower tax slabs will increase compliance and, thereby, revenue

Excise worries A shortfall of Rs 6,000-7,000 crore is expected this fiscal year

Tax divergence There is variance between the Customs, excise and service taxes. If the Customs duty is cut to 15% from 20%, the peak excise rate should also be brought down from 24%