Automobiles

Reduction in tariff results in higher revenue as noticed in the recent past in the case of Motor Car, where industry registered growth rate of 22% till September 2006. as other segments of Motor Car contributes 60% of total passenger car market considering better revenue (High Value Product), it is prudent to bring other segments also under 16% core excise rate.

A distinction has been made in the tariff denying 8% duty refund to the Motor cars with a seating capacity of over and above 6+1 persons.

It should be clarified that sales promotion expenses incurred by dealers are not includible to the Transaction Value in line with judicial pronouncement. There is a need to accept ‘Transaction Value’ in its true spirit.

 Cigarette Industry

The specific Duty Structure has proved to be extremely beneficial and superior to the earlier advalorem structure. The current duty structure, which provides for different duty rates for different lengths of cigarettes should retained.

It is imperative that the government reviews the existing laws and make our system more conducive so that more and more domestic players can enter in the field. Apart from reviewing the existing statutes, there is a need to provide an enabling environment for this sector to grow in much faster pace so that we can be at par with the retailing segments prevalent in countries like China USA, UK etc.

The laws which need to be reviewed on an urgent basis inter-alia include (i) Essential Commodities Act, (ii) Weights and Measures Act, (iii) Agriculture Produce Marketing Act, (iv) Prevention of Food Adulteration Act and (v) Shops and Establishment Act.

The advantage of the same include: (i) Greater focus on retail development (ii) Fiscal incentives for retail industry, (iii) Availability of organized financing and (iv) Establishment of insurance norms.

It is important that VAT should be introduced in all states and rates should be uniform across all states on same product. Further CST in toto should be abolished as destination based VAT and CST cannot go hand in hand.

 Steel Wire Industry – Durable bonds

To encourage Raw Material import, rather than finished Products, i.e., Steel Wire, lower import duty on Wire Rod is necessary. Presently both of them are being imported under the same import duty rates , i.e. 5%. Most of The ASEAN Countries like Brunei, Indonesia, Laos, Myanmar, Philippines, Singapore, Thailand and Vietnam have imposed customs tariffs on the product to 3% 1% 0%.

The wire of other Alloy Steel is subject to inverted duty structure because the inputs required for the product are 1) Bars and Rods, Hot Rolled, in irregularly wound coils, of other Alloy Steel (Customs Tariff Classification 7227) – having 7.5% customs duty and 2) Zinc (Customs Tariff Classification 7901) – having 7.5% custom duty. Therefore for both the raw material, duty difference over finished product is zero suffering the said product i.e. Wires of other alloy steel, from Inverted Duty Structure.

 Excise Duty Structure

In India, the cascading effect of excise, customs, sales tax and other local levies results in the effective consumption taxes amounting to over 35% of the final price to the consumer, double of that in U.K. FICCI strongly believes that there is an urgent need for a massive cut in commodity taxes, especially on demand elastic items to stimulate demand in the economy. Tax cuts would provide the much – needed boost to India’s manufacturing sector.

What is needed is that Government should move away from its over dependence on the manufacturing sector as its major revenue base, and instead, enlarge the service tax net, design the customs duty structure so as to strengthen the domestic sector to develop its competitiveness in expert as well as against imports at home. It is important that the concept of SED should be done away with altogether in the forthcoming Budget and the overall incidence of duty and other levis on manufacturing reduced drastically. The Government should reduce the Excise Duty from 16% to 14% in this year’s Budget Itself.

Moreover, in all cases of inversion in duty structure, it is important that the government should evolve a mechanism to refund the credit accumulated in Cenvat account which cannot be utilized by way of Modvat. This could be on the pattern of refund of excess income tax paid under the Income Tax Act. Such refund, within a stipulated time frame will improve upon the cash flow position of the units for day-to-day working without changing the duty structure, as also enhance the competitiveness of such units.

 Customs Duty Structure

With India becoming an integral part of the global family by signing several Free Trade Agreements with Thailand , Singapore and other ASEAN countries, it was also felt necessary to align the tariff rates, customs duties with those of ASEAN level. In the para 120 of the budget speech, the Finance Minister has moved ahead in that direction.

FICCI believes that though the reduction in peak customs tariff in the last Budget from 15% to 12.5% is a step towards aligning our tariff rates with those of the ASEAN countries; it would be in fitness of things if the alignment in customs tariff were calibrated with internal reforms.

Time is ripe now to have a 3-tier customs duty structure. The customs duty on raw material should lowest, with a slightly higher customs duty on intermediates and highest duty on finished goods. The reduction in peak customs duty should be with a focus on raw materials and not on finished goods.

 Education Cess

The cess attributable to the additional duty of customs leviable under Section 3 of the Customs Tariff Act, on inputs and capital goods, will be available as credit for payment of cess on the final products manufactured in India. It is important to note that Cess though imposed at 2%, actually amounts to more than 2% of the Customs Duty due to the cascading effect and computation of effective customs duty.