The Hindu Business Line : No change in peak rate of customs duty

Many people are surprised by the buoyancy in tax revenues, especially in direct taxes. I am not. I have always maintained that moderate and stable tax rates coupled with a tax administration that shows no fear or favour will bring high revenues to the exchequer.

The UPA Government inherited a tax to GDP ratio of 9.2 per cent in 2003-04. At the end of 2007-08, that ratio would have risen to 12.5 per cent.

High growth rates have helped. Changes in attitude have also helped. Above all, information systems and technology have helped most. And, if I may add in a lighter vein, having a lucky Finance Minister may have also helped! We are on course to achieve the Budget Estimates of indirect taxes and exceed the Budget Estimates of direct taxes. I take this opportunity to thank all tax payers and I promise them an efficient and tax payer-friendly administration. The peak rate for non-agricultural products was 20 per cent in January 2004 and now stands at 10 per cent. The collection rate is the closest approximation to the level of protection to domestic industry, and that rate for all imports stood at 10 per cent in 2006-07. Since April 2007, the rupee has appreciated against the US dollar by 9.8 per cent. Consequently, the case for reducing the peak rate at this stage is very weak. Hence, I propose to make no change in the peak rate of customs duty.

However, I find that in some cases it is necessary to reduce the customs duty in order to provide a fillip to that industry or to promote value addition or to remove inversion or any other anomaly. I shall refer to a few such cases.

Project imports

I propose to reduce the customs duty on project imports from 7.5 per cent to 5 per cent. However, I also propose to impose the 4 per cent special CVD on a few specified projects in the power sector.

In order to improve the supply of raw material, I propose to reduce the duty on steel melting scrap and aluminium scrap from 5 per cent to nil.

On certain specified life saving drugs and on the bulk drugs used for the manufacture of such drugs, I propose to reduce the customs duty from 10 per cent to 5 per cent as well as to totally exempt them from excise duty or countervailing duty.

In order to reduce the cost of manufacture of cattle and poultry feeds, I propose to reduce the duty on vitamin premixes and mineral mixtures from 30 per cent to 20 per cent and on phosphoric acid from 7.5 per cent to 5 per cent.

The duty on bactofuges will be reduced from 7.5 per cent to nil. This will increase the shelf life of milk and benefit the dairy industry.

I propose to fully exempt from duty specified parts of set top boxes and specified raw materials for use in the IT/electronic hardware industry.

To establish parity between devices used in the information/ communication sector and the entertainment sector, I propose to reduce the duty on convergence products from 10 per cent to 5 per cent.

To provide a fillip to the manufacture of sports goods, I propose to reduce the duty on specified machinery from 7.5 per cent to 5 per cent. I also propose to exempt from duty specified raw materials for sports goods.

The gem and jewellery industry has responded well to the duty reductions made last year. In order to encourage value addition and exports, I propose to exempt from duty rough cubic zirconia and to reduce the duty on polished cubic zirconia from 10 per cent to 5 per cent. Similarly, the duty on rough coral will be reduced from 10 per cent to 5 per cent.

To facilitate training of helicopter pilots, I propose to remove the duty on helicopter simulators.

Crude, unrefined sulphur

In order to support domestic fertiliser production, I propose to reduce the customs duty on crude and unrefined sulphur from 5 per cent to 2 per cent.

Thanks to a complex regime of export benefits and duty exemptions, naphtha is exported from refineries and naphtha is imported by manufacturers of polymers, leading to price distortions and revenue losses. I propose to correct the situation by withdrawing the duty exemption on naphtha for use in the manufacture of polymers and subject it to the normal rate of 5 per cent. However, naphtha imported for the production of fertilisers will continue to be exempt from import duty.

Finally, in order to conserve chrome ore and make it available for value added manufacture in India, I propose to increase the export duty from Rs 2,000 per tonne to Rs 3,000 per tonne.

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