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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
144. Let me now explain briefly the new regime.
• Firstly, the mandatory Cenvat chain will stand abolished.
• Secondly, there will be no mandatory excise duty on pure cotton, wool and silk, whether it is fibre, yarn, fabric or garment.
• Thirdly, blended textiles and pure non-cotton (polyester, viscose, acrylic and nylon) will have a different tax regime.
• Fourthly, there will be a mandatory excise duty on man-made staple fibre at 16 per cent; on polyester filament yarn (including textured yarn) at 24 per cent; and on other man-made filament yarn (including textured yarn) at 16 per cent.
145. Every manufacturer – be it handloom or powerloom or composite mill – will have the option to choose between two routes. One will be the exemption route and the other will be the Cenvat route. Under the exemption route, no excise duty will be payable at any stage (except on man-made fibre and filament yarn). Under the Cenvat route, credit can be taken for all excise duties paid at earlier stages. For the purposes of the optional Cenvat route, it is necessary to specify in the Tariff schedule the applicable excise duty rates. For the pure cotton sector, the uniform rate will be 4 per cent on yarn, fabrics, garments and made-ups. For the blended textiles sector and pure non-cotton sector, the uniform rate will be 8 per cent.
146. It is my firm belief that the millions of handloom weavers and powerloom weavers will welcome the new regime. As far as the composite mills are concerned, there is no cause for worry. They are also free to take the exemption route, but if they choose to opt for the Cenvat route, they may do so and claim Cenvat credit for all duties paid at earlier stages. Garment exporters should give the new regime a fair chance. I expect that prices of fabrics will moderate and garment exporters will stand to benefit. Their concerns, if any, can be addressed through the drawback or DEPB mechanism.
147. In course of time, it is possible that some manufacturers of handlooms and powerlooms will take advantage of the low uniform rates of duty and opt for the Cenvat route.
148. There remains the service tax. I propose to take a major step towards integrating the tax on goods and services. Accordingly, I propose to extend credit of service tax and excise duty across goods and services. In order to neutralize the revenue impact of such extension, and keeping in mind the mean Cenvat rate, I propose to enhance the rate of service tax from 8 per cent to 10 per cent.
149. 58 services have been brought under the net so far. I propose to add some more this year. These are business exhibition services; airport services; services provided by transport booking agents; transport of goods by air; survey and exploration services; opinion poll services; intellectual property services other than copy right; brokers of forward contracts; pandal and shamiana contractors; outdoor caterers; independent TV/radio programme producers; construction services in respect of commercial or industrial constructions; and life insurance services to the extent of the risk premium. I may clarify that there is no intention to levy service tax on truck owners or truck operators. Nor, as was clarified by my predecessor, is there any intention to levy service tax on the savings part of the premium collected by an insurer.
150. I also propose that some currently taxable services should be redefined to cover all service providers falling under the same category, but I do not wish to burden this speech with the details. Exemptions granted in the case of some taxable services are proposed to be removed. The administration of service tax will be made more tax-payer-friendly. I propose to do away with the mandatory verification of self assessment and the mandatory penalty for non-registration.
151. Finally, there is the tax mandated by the NCMP. That is an education cess on all taxes. I propose to levy a cess of 2 per cent on income tax, corporation tax, excise duties, customs duties and service tax.
152. Besides my tax proposals, I have looked at another source of revenue. There are large recoverable arrears both in direct taxes and indirect taxes. Even the undisputed arrears are quite substantial. I have, therefore, assumed that I would be able to recover a tidy sum this year. A special, multi-pronged drive will be made to recover these arrears, the details of which will be announced later.
153. My tax proposals on direct taxes are expected to yield a gain of Rs.2000 crore. On the indirect taxes side, they are broadly revenue neutral.
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