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Indian Budget 2007-08- Full Text of Budget Speech

XIII. TAX PROPOSALS- Indirect Taxes


125. I shall begin with indirect taxes. Firstly, customs duties.

126. In January 2007, Government announced wide ranging reductions in tariffs. Import duties on capital goods, project imports, metals and specified inorganic chemicals were reduced by 2.5 percentage points and, in some cases, by 5 percentage points. Duties on some edible oils were reduced by 10 to 12.5 percentage points.

127. In order to take one more step towards comparable East Asian rates, I propose to reduce the peak rate for non-agricultural products from 12.5 per cent to 10 per cent.

128. I propose to reduce the duties on most chemicals and plastics from 12.5 per cent to 7.5 per cent.

129. The duty on prime steel is 5 per cent. Seconds and defectives augment supply. Keeping in mind the need for a differential, I propose to reduce the duty on seconds and defectives of steel from 20 per cent to 10 per cent.

130. I propose to fully exempt from duty all coking coal irrespective of the ash content.

131. Last year, I reduced the excise duty on all man-made fibres and yarns from 16 per cent to 8 per cent. To further encourage this industry, I propose to reduce the customs duty on polyester fibres and yarns from 10 per cent to 7.5 per cent. Consequently, the customs duty on raw-materials such as DMT, PTA and MEG will also be reduced from 10 per cent to 7.5 per cent.

132. Another industry that is a growth- and employment- driver is gem and jewellery. I propose to bring down the duty on cut and polished diamonds from 5 per cent to 3 per cent; on rough synthetic stones from 12.5 per cent to 5 per cent; and on unworked corals from 30 per cent to 10 per cent.

133. I propose to fully exempt dredgers from import duty.

134. To augment irrigation facilities and processing of agricultural products, I propose to reduce the duty on drip irrigation systems, agricultural sprinklers and food processing machinery from 7.5 per cent to 5 per cent.

135. While specified medical equipment attract a concessional duty of 5 per cent, other equipment are taxed at 12.5 per cent. I propose to bring down the general rate of import duty on medical equipment to 7.5 per cent.

136. In order to make edible oils more affordable, I propose to exempt crude as well as refined edible oils from the additional CV duty of 4 per cent. I also propose to reduce the duty on sunflower oil, both crude and refined, by 15 percentage points.

137. I have good news for cat and dog lovers. I propose to reduce the duty on pet foods from 30 per cent to 20 per cent.

138. I propose to reduce the duty on watch dials and movements as well as umbrella parts from 12.5 per cent to 5 per cent.

139. In order to promote research and development, I propose to extend the concessional rate of 5 per cent duty available to public funded research institutions to all research institutions registered with the Directorate of Scientific and Industrial Research. For the pharmaceutical and biotechnology sector, I propose to reduce the duty on 15 specified machinery from 7.5 per cent to 5 per cent.

140. Import of aircraft, including helicopters, by Government and scheduled airlines is, at present, exempt from all duties, and that position will continue. However, there is no reason to allow the exemption to other private importers. Hence, I propose to levy an import duty of 3 per cent, which is the WTO bound rate, on all private import of aircraft including helicopters. Such import will also attract countervailing duty and additional customs duty.

141. The Hoda Committee has submitted a report on mineral policy. Taking a leaf out of the report, and in order to conserve our natural resources as well as to raise revenue, I propose to impose an export duty of Rs.300 per metric tonne on export of iron ores and concentrates and Rs.2,000 per metric tonne on export of chrome ores and concentrates.

142. I shall now turn to my proposals on excise duties and service tax.

143. There will be no change in the general CENVAT rate or in the service tax rate.

144. On February 15, 2007, Government reduced the price of petrol and diesel by Rs.2 per litre and Re.1 per litre, respectively. I had agreed that the Revenue will bear a part of the burden. Hence, I propose to reduce the ad valorem component of excise duty on petrol and diesel from 8 per cent to 6 per cent.

145. Keeping in mind the special needs of several sectors and the interest of the consumers, I propose to grant relief from excise duty in deserving cases, especially job creating sectors:

I propose to raise the exemption limit for small scale industry (SSI) from Rs.1 crore to Rs.1.5 crore.

The food processing sector is poised to achieve high growth. Concessions were extended last year to several items of food. This year, I propose to fully exempt from excise duty biscuits whose retail sale price does not exceed Rs.50 per kilogram. I also propose to fully exempt from excise duty all kinds of food mixes including instant mixes. I can no longer be accused of being partial to idli and dosa mixes.

I propose to reduce excise duty on umbrellas and parts of footwear from 16 per cent to 8 per cent.

Plywood helps to save wood. Hence, I propose to reduce excise duty on plywood from 16 per cent to 8 per cent.

Biodiesel will greatly reduce our dependence on fossil fuels. Hence, I propose to fully exempt biodiesel from excise duty.

146. To provide access to pure drinking water for households and communities, I propose to fully exempt from excise duty water purification devices operating on specified membrane based technologies as well as domestic water filters not using electricity.

147. Pipes used for carrying water from a water supply plant to a storage facility are exempt from excise duty. I propose to extend the exemption to all pipes of diameter exceeding 200 mm used in water supply systems.

148. There has been a significant increase in the retail price of cement. Last year, at this time, a bag of 50 kilogram was sold at a Maximum Retail Price (MRP) of Rs.190 or less which, I understand, is a remunerative price. I propose to reward cement manufacturers who hold the price line and tax those who do not. Accordingly, I propose to reduce the present rate of excise duty of Rs.400 per metric tonne to Rs.350 per metric tonne on cement which is sold in retail at not more than Rs.190 per bag. On cement that has a higher MRP, the excise duty will be Rs.600 per metric tonne.

149. I strongly support the campaign "say no to tobacco". Hence, I propose to increase the specific rates of excise duty on cigarettes by about 5 per cent. Similarly, excise duty (excluding cess) on biris, which was last fixed in 2001, will be raised from Rs.7 to Rs.11 per thousand for non-machine made biris and from Rs.17 to Rs.24 per thousand for machine made biris. There is an exemption from excise duty for unbranded biris up to 20 lakh biris in a year. Complaints have been received of misuse of the exemption. This exemption will henceforth be available subject to fulfilment of the condition of declaration with the Department of Central Excise and regular monitoring.

150. Pan masala containing tobacco will continue to bear an excise duty of 66 per cent. However, in the case of pan masala not containing tobacco, the duty will be reduced from 66 per cent to 45 per cent. I also propose to withdraw the exemption for pan masala containing tobacco and other tobacco products that is now given to units in the North Eastern States.

151. Based on a comprehensive review of exemptions and having posted them on the website and having invited comments, I propose to remove certain excise duty exemptions which are redundant or have outlived their utility.

152. I propose to raise the exemption limit for small service providers from Rs.400,000 to Rs.800,000. Consequently, 200,000 assessees out of a total of 400,000 assessees will go out of the service tax net. The revenue loss will be Rs.800 crore, but I am happy to give away this sum in the interest of the small service provider and the consumer.

153. While I bid goodbye to 200,000 assessees, I welcome the new assessees who will be brought into the fold. I propose to extend service tax to:

Services outsourced for mining of mineral, oil or gas;

Renting of immovable property for use in commerce or business; however, residential properties, vacant land used for agriculture and similar purposes, land for sports, entertainment and parking purposes, and immovable property for educational or religious purposes will be excluded;

Development and supply of content for use in telecom and advertising purposes;

Asset management services provided by individuals; and

Design services.

154. State Governments levy a tax on the transfer of property in goods involved in the execution of a works contract. The value of services in a works contract should attract service tax. Hence, I propose to levy service tax on services involved in the execution of a works contract. However, I also propose an optional composition scheme under which service tax will be levied at only 2 per cent of the total value of the works contract.

155. I propose to exempt service tax on services provided by Resident Welfare Associations to their members who contribute Rs.3000 or less per month for services rendered.

156. In order to encourage innovation, I propose to exempt from service tax all services provided by technology business incubators. Similarly, their incubatees whose annual business turnover does not exceed Rs.50 lakhs will be exempt from service tax for the first three years.

157. To make India a preferred destination for drug testing, I propose to exempt clinical trial of new drugs from service tax.

158. The scope of some services that are currently taxed is being expanded or redefined. However, I shall not burden the House with the details.

159. The telecommunications industry has repeatedly requested that the multifarious taxes, charges and fees applicable to the industry should be unified and a single levy on revenue should be collected. The request merits consideration. Hence, I propose to request the Department of Telecommunications to constitute a committee to study the present structure of levies and make suitable recommendations to Government.

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