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XI. TAX PROPOSALS
Indian Budget 2004-05
Full Text of P. Chidambaram, Minister of Finance, Budget Speech(July 8, 2004)
Indirect taxes
119. Now, I turn to my indirect tax proposals. The policy signal that needs to be reiterated is that customs duties will be brought down in a measured way. It is my intention to align India’s tariff structure to those of ASEAN countries. Eventually, there should be a uniform rate of tax on goods and services. During the last four years, my predecessors had adjusted excise duties and moved them towards a Central VAT rate. That process must continue. The most important goods in the manufacturing sector must therefore bear an excise duty of 16 per cent.
120. Another principle that requires to be emphasized is that where an excise duty is levied, subject to only a few exceptions, like goods when imported should attract an equivalent countervailing duty (CVD). In my tax proposals, I have, therefore, removed the exemption from CVD enjoyed by some imported goods where there is no corresponding exemption from excise duty on Indian made goods.
121. I may also point out that customs tariffs and excise duties are inter-related. While considering the tax regime for any sector, one must look at both customs duties and excise duties applicable to that sector.
122. The peak rate of customs duty was reduced to 20 per cent in January 2004. I propose to maintain the peak rate for the rest of the current fiscal year.
123. I shall now deal with specific sectors beginning with metals, minerals and industrial raw materials. Steel is the leading metal. Normally, it should bear an excise duty of 16 per cent. However, in February this year, excise duty on steel was reduced from 16 per cent to 8 per cent, but with the caveat that the decision will be reviewed when the regular budget is presented. Belying expectations, steel prices have not moderated but have risen sharply. I propose to reduce the customs duty on non-alloy steel from 15 per cent to 10 per cent and to increase the excise duty on steel from 8 per cent to 12 per cent so that the countervailing duty will also be applicable to imports. I hope to recoup some of the revenue losses since February 2004.
124. Alloy steel, copper, lead, zinc and base metals are basic raw materials used in a variety of industries. I propose to reduce the peak rate on such metals to 15 per cent. I also propose to reduce the customs duties on refractory raw minerals and mineral products like graphite, asbestos, mica and gypsum to 15 per cent. The customs duty on all catalysts will also be 15 per cent.
125 I propose certain concessions to the agriculture sector. To encourage value addition, while retaining customs duty on crude palm oil at 65 per cent, I propose to accept the recommendation of the Tariff Commission and increase the duty on refined palm oil to 75 per cent.
126. Some items of plantation machinery attract a customs duty of 5 per cent. I propose to extend the concessional rate to more items pertaining to the tea and coffee plantation sector.
127. On the excise front, I propose to make a number of concessions. Tractors attract an excise duty of 16 per cent. Hereafter, tractors will be fully exempt. Likewise, dairy machinery which attracts an excise duty of 16 per cent will be fully exempt. Hand tools such as spades, shovels, sickles etc, which currently attract a 16 per cent excise duty will also be fully exempt.
128. Excise duty on preparations of meat, poultry and fish will be reduced from 16 per cent to 8 per cent and excise duty on food grade hexane (used in the edible oil industry) will be reduced from 32 per cent to 16 per cent.
129. I propose to give some concessions to the health sector. A number of items for the disabled are already exempt from import duties or attract a concessional duty of 5 per cent. I propose that rehabilitation aids such as talking books, braille computer terminals, braille writers and typewriters, assistive listening devices, cochlear implants and stair lifts be fully exempt from customs duty. They will also be exempt from excise duty and CVD. Crutches, wheel chairs, walking frames, artificial limbs, etc. for the disabled will also be fully exempt from customs duty. There are some restrictions on institutions for the visually-impaired and the hearing-impaired availing of import duty exemptions. I propose to remove these restrictions as well as enlarge the list of exempted appliances. Ambulances used by government and municipal hospitals alone have been allowed the concessional excise duty of 16 per cent. I propose that all ambulances registered as such will be entitled to this benefit. Diagnostic kits for detecting hepatitis B alone are exempt from excise duty. I propose to extend the exemption to kits for detection of all types of hepatitis.
130. In order to move toward the Cenvat rate, I propose to levy excise duty on contact lenses and playing cards. I also propose to increase the excise duty from 8 per cent to 16 per cent on a few items including vaccum flasks, plastic insulated ware, scented supari, prefabricated buildings, laboratory glassware, black and white television sets, populated PCBs, imitation jewellery, candles and parts of clocks and watches. Let me hasten to add that in all these cases the general SSI exemption will continue to be available, and consumers and small manufacturers will not be affected at all. Even other manufacturers will avail of Cenvat credit.
131. In order to protect matches made in the non-mechanised sector, I propose to increase the excise duty on matches made in the mechanized/semi-mechanised sector from 8 per cent without Cenvat credit to 16 per cent with Cenvat credit.
132. The Information Technology sector has, by and large, been kept out of the reach of the tax collector. Under the Information Technology Agreement, customs duty will be brought down to zero in 2005. Meanwhile, I propose to abide by the bound rates under the agreement.
133. I propose to exempt specified raw materials for manufacture of parts of cathode ray tubes and specified capital goods for manufacture of mobile handsets, plasma display panels etc. from excise duty. Specified items for manufacture of telecom grade optical fibres and cables are also proposed to be exempt from customs duty. Mobile switching centres imported by cellular mobile telephone service providers are now exempt from customs duty. I propose to extend the exemption to imports by universal access service providers.
134. Computers attract excise duty of 8 per cent. I propose to grant full exemption.
135. I propose to give some excise relief to LPG gas stoves bearing an MRP up to Rs.2000, footwear with MRP upto Rs.250 and writing instruments with MRP upto Rs.200.
136. I propose to reduce the excise duty on amusement rides from 20 per cent to 10 per cent.
137. Having been Commerce Minister, export promotion is close to my heart. I propose to extend the concessional customs duty of 5 per cent on capital goods enjoyed by the leather industry to the non-leather footwear industry too.
138. Finished leather of all kinds is exempt from customs duty. I propose to exempt patent leather also.
139. Platinum is a serious challenger to gold in the jewellery industry. Both should be treated alike. Hence, I propose to reduce the import duty on platinum from Rs.550 per 10 grams to Rs.200. I propose that rough coloured precious gemstones should be exempt from customs duty just as rough semiprecious stones are.
140. Area specific exemptions from excise duty have been granted from time to time. The North Eastern States and J&K are in a class by themselves. The exemptions enjoyed by them will continue. Sikkim, Uttaranchal and Himachal Pradesh were also granted area-based exemptions. Hon’ble Members are fully aware of the arguments in favour and the rival arguments against. I have to be fair to both sides. Accordingly, I propose that area specific exemptions enjoyed by States other than the North Eastern States and J & K will continue and be available to units set up or expanded on or before March 31, 2007.
141. I shall now deal with the most challenging tax problem that I faced this year. This relates to the textile sector. Last year, handlooms and powerlooms were brought into what is described as the Cenvat chain. The intention was good but, I am afraid, the decision did not take into account the decentralized and fragmented nature of production of fabrics in the country. Besides, the
so-called Cenvat chain had nearly 40 exemptions at different stages. In fact, two exemptions were added after the decision.
142. I am conscious that the Agreement on Textiles and Clothing will come to an end on December 31, 2004. Our textile sector must, therefore, be made more efficient and competitive. Those who can compete because of their organizational strength should be allowed to compete; for the rest, we must allow more time to comply with a mandatory tax regime. Meanwhile, there must be a level playing field.
143. If I have understood correctly the mind of Hon’ble Members of Parliament, and of the leaders of various political parties, I believe that there is a universal demand to free the handloom and powerloom sectors from the Cenvat regime. After giving my anxious consideration to the complex issues, I propose to withdraw the mandatory Cenvat duty. Instead, I propose to introduce a new tax regime for the textile sector and, in this exercise, I am happy to say that I have the full support of the Minister of Textiles.
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