Indirect Taxes

Customs Duty (Recommendations):

1. There are many commodities whose customs duty rates have not been reduced during last five tears. All these duty rates above peak rates may be reviewed and rationalized.
2. Further reduction of peak rate of customs duty to 10% in the budget 2007-08. However, this should be linked to internal reforms to reduce transaction cost due to higher infrastructure cost, power cost, cargo dwell time in ports/airports and reduction of CST from 4% to 2% with effect from 1st April 2007.
3. While reducing peak rate of customs duty to 10% there should be corresponding reduction of duty rates on intermediates and raw materials, wherever feasible, to maintain two/three tier duty structure.
4. If the two preconditions mentioned above are satisfied and peak rates are reduced then, the three most common slabs of customs duty structure should be 10%, 7.5% and 5%.
5. Remove exemption of special CVD on imports where Central Sales Tax (CST) and Value Added Tax (VAT) are leviable on indigenous goods.

Excise Duty (Recommendations):

1. Reduce excise duty from 16% to 8% on:
   
   • Energy efficient triphosphorus lamps.
   • Pesticides for Agriculture
   • Processed food and agro-based products having 16% excise duty.
   • Electric Fans
   • Two wheelers and its components
   
   
2. Reduce excise duty from 24% to 16% on all types of vehicles.
3. Exempt duty on:
   • Ferro alloy slag as it has no commercial value.
   • All equipment supplied to research and development industries/ IIT’s as CVD is exempted on imported equipment to remove negative protection against domestic suppliers.
   
   
4. Allow the textile manufacturers to avail the options of full exemptions of excise duty or payment of 4% excise without insistence of maintaining separate books of accounts for inputs.

Corporate Taxes (Recommendations)

1. Reduce distribution tax on dividend from 14% to 5%.
2. Reintroduce section 80 M, which provides for the deduction in respect of dividends received from another domestic company to the extent of dividends, which are in turn distributed by the recipient company.
3. To enable Indian companies to compete effectively in the World market by setting-up overseas entities, dividends received from such entities in convertible foreign exchange should be in the line with the dividend received from any domestic company.

 Fringe Benefit Tax

Fringe Benefit Tax (FBT) should be abolished or the choice be given to tax paying firms to pay 1 percent additional corporate tax on its total income in lieu of FBT. Otherwise the corporate could choose to remain under FBT. In case this is not possible then CII proposes levy of FBT only on element of personal benefit to employees and exclusion of deeming provision of treating a portion of pure business expenses as personal expenses.

 Sector and Industry specific

Air-conditioners and equipments:

• In view of further reduction of duties on import from Thailand to Nil with effect from 1st September 2006, basic customs duty on all inputs.

Auto Components:

• Import duty on all the raw materials, used specifically for producing auto components falling in the Early Harvest Scheme of FTA with Thailand, should be reduced to 5%. The review of abatement on RSP on parts, components and assemblies of automobiles needs to be expedited.
• Customs duty concession of 5% on CNG kits/ parts of kits should be extended to raw material required for manufacture of CNG kits and its parts.

Automobiles:

• Reduce excise duty from 24% to 16% on all passenger vehicles including multi-utility vehicles and petrol driven vehicles for transport of goods.
• The benefit of 8% excise duty refund should be ext5ended in vehicles under CET 8702 when registered as maxicab (taxi).
• Allow clearence of ambulance at the applicable concessional excise duty of 16% and the present system of paying full duty and claiming refund should be done away with.

Capital Goods:

• Impose 4% special CVD on all types of projects and others which involve import of capital goods by removal of exemption to counter balance internal taxes such as CST/VAT
• Import of capital goods under 0% category for project imports and others should be removed.
• Impose 16% CVD on aerial passenger ropeway projects.

Cement:

• Excise duty on cement based on specific rate should continue.
• Excise duty on cement should be reduced from Rs. 400 to Rs. 350 per tonne.

Cigarettes:

• The current length should be retained and the excise duty rates be kept stable
• Cigarettes should be kept out of the purview of VAT, as on highly taxed cigarettes, VAT will tantamount to a “Tax on Excise” resulting in a high cascading impact.