Pharmabiz
 

CII presents roadmap for customs duty rationalisation

Our Bureau, ChennaiFriday, December 7, 2001, 08:00 Hrs  [IST]

In a meeting with the Revenue Secretary Dr. S Narayan on the Union Budget for the fiscal 2002-03 here, the Confederation of Indian Industry (CII) has presented a roadmap for customs duty rationalisation. In the backdrop of the statement of the Finance Minister in the last budget to bring down peak tariff to 20 per cent over the next three years, CII said that the roadmap could be the best possible route towards achieving this. Currently, according to CII, out of 5132 tariff lines, 4703 or 91.7 per cent belong to the common rates of 5,15, 25 and 35 per cent and there are 19 additional rates ranging from 0- 210 per cent covering 430 tariff lines. In the rationalisation process, CII suggested that the number of common rates could be brought down to 3 and the exceptional rates to a maximum of 5. This, however, does not mean that all items within a particular rate of duty at present move towards a reduced rate as suggested in the roadmap. Rather, CII stressed, an item-wise analysis is needed to adjust various items in different proposed slabs. While reducing duties on the end products it is essential that the duty on their inputs are also reduced either by tariff or by notification, CII added. CII pointed out that there is also a need to carefully calibrate the process by following certain basic principles. The first principle was that the rationalisation process must closely correspond to internal domestic reforms in infrastructure, financial sector and labour with a clear road map. The second principle is in regard to the rate structure, which should primarily encourage greater value addition within the country. The third principle is that the net effect of duties must never result in negative effective rates of protection. The other basic necessities are the need to bring down rates to 3 common and 5 exceptional from 4 common and 18 exceptional rates besides zero at present and the need to avoid duty escalation as far as possible. CII said that the present rate of Special Excise Duty (SED) of 16 per cent on some commodities on top of proposed state RNR VAT rate of 10 per cent - 14 per cent and likely SAT is very high, especially when growth in industry is down. CII's suggestions to the Revenue Secretary also included a set of measures to act as a stimulus package for industry, which is currently undergoing possibly the worst phase of slowdown for a long time. These measures covered both direct as well as indirect taxes. On the direct tax front, stimulus to industry can be provided through a 5 percentage reduction in corporate tax from 35 per cent to 30 per cent which would also allow corporate to generate more internal resources for further deployment. With the move towards withdrawal of exemptions and phasing out of deductions, a reduction in the corporate tax rate would compensate these as well as ensure voluntary compliance. CII also called for the need to correct anomalies in customs duty structure, which fall into three categories, as far as possible. Giving instances of the three categories, CII pointed out that a product such as cables for telecommunications was in the first category where the duty on components and raw materials are higher than finished product. Twenty one specified capital goods required for road construction fall in the second category where customs duties have been exempted for certain purposes, but the indigenous manufacturers have not been given corresponding benefits on their inputs. On the other hand battery lead acid type and lead fell in the third category where the customs duty on major inputs are at par with the finished products thereby affecting value addition. On Special Additional Duty (SAD), which was introduced in 1998-99 to compensate for the sales tax and other local levies and imposed on imports by traders also in 2000-01, CII was of the opinion that it can continue since it compensates for local levies. However, with the phasing out of Central Sales Tax on the anvil, it can be reduced correspondingly, CII felt. While the Cenvat of 16 per cent has brought in fundamental rationalisation, CII suggested that, corresponding to a widening of the tax net, it could be brought down by 1 to 2 percent in the future. The Additional Excise Duty (AED) currently levied on textiles, sugar and tobacco being in lieu of sales tax does not allow set-off under CENVAT. CII pointed out that the continuation of AED in its present form will lead to a break in the VAT chain. CII has therefore suggested that AED be replaced by VAT. Suggesting a switch over to 8 digit code for customs, excise, exim policy and data collection would solve the problems in the present 6 digit classification code which is resulting in classification disputes particularly for goods appearing in the "others" category. In addition, it will also be useful for prescribing bound rates for a particular product in future WTO negotiations on tariff.

 
[Close]