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The Finance Minister, Mr Pranab Mukherjee, on Tuesday came out with slew of amendments to the Finance Bill to allay the concerns of industry over several provisions including mandatory excise duty on branded readymade garments, service tax levy on health services and also switchover to services taxation on accrual basis.
The total giveaway by the Government on account of these latest amendments would at the most be around Rs 1,500 crore. Mr Mukherjee announced withdrawal of the new service tax levy on health services in entirety both for services provided by hospitals as well as by way of diagnostic tests.
The Finance Ministry was earlier looking to mop up Rs 300 crore from the service tax levy on health services.
To encourage more inflows of funds into India from foreign subsidiaries, Mr Mukherjee also lowered the holding requirement in the foreign company from 50 per cent to 26 per cent. Budget 2011-12 had proposed a lower tax rate of 15 per cent on dividends received by Indian companies from foreign subsidiary companies in which the Indian company holds more than 50 per cent share capital.
Bowing to the concerns expressed by service providers, Mr Mukherjee also announced an additional period of three months, up to June 30, to make the transition to collection of service tax on accrual basis.
He had in the Budget speech announced that service tax would be collected on an accrual basis from April 1 as against the current system of collection of tax on receipt basis. The biggest beneficiaries of the latest amendments are the readymade garment manufacturers who will now get an increased abatement of 55 per cent as against 40 per cent earlier for the purpose of 10 per cent excise duty levy. This move would lead to a revenue sacrifice of about Rs 1,000 crore for the exchequer.
Replying to the discussions on the Finance Bill in the Lok Sabha, Mr Mukherjee said that the overall burden of tax would come down on account of the latest increase in abatement and that small manufacturers would benefit from this decision.
“I would take this opportunity to re-emphasise that this would enable an SSI unit to continue to enjoy the exemption even if it had a turnover based on Retail Sale Price (RSP) of Rs 8.9 crore in 2010-11,” he said while announcing additional measures to this sector.
Finance Bill passed
The Lok Sabha later passed the Finance Bill after Mr Mukherjee moved 42 amendments to the original Bill. The Bill was passed in the absence of members of leading opposition party BJP who staged a walkout.
Mr Mukherjee, in his reply, noted that it was pointed out to him by the garment industry that often brand owners who outsource production to small units do not disclose the RSP to them. Since the duty is payable on a value linked to the RSP, this poses a problem for small manufacturers.
The Finance Ministry has now decided to come up with a deeming provision to enable small units to pay duty on the wholesale price at which they make a sale to the brand owner.
“As and when the brand-owner affixes the RSP on the garment or made-up, he would pay the additional duty, if any,” Mr Mukherjee said.
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