Finance Minister Jaswant Singh announced a series of tax reliefs, in what is widely-believed to be a pre-poll bonanza to enhance the "feel good" factor. The in a mini-Budget bonanza for industry are broadly in line with the Kelkar Committee recommendations made last year.

Customs and excise duties across sectors, have been brought down - peak customs duty on non-farm goods have been scaled down to 20 per cent from 25 per cent while the 4 per cent special additional duty (SAD) has been abolished - aimed at fuelling growth. Import duty on project imports with a minimum investment of Rs 5 crore has been brought down to 10 per cent from 25 per cent. These two measures are expected to cost the exchequer Rs 8,700 crore.

While this bonanza to industry will impact revenue collections, analysts feel the higher growth would nullify the shortfall in the long run since customs duty reductions will make domestic manufacturers more competitive. Its a clear message from the government that there will be no going back on the economic reforms agenda

At the personal level, a series of measures announced by the minister have helped enhance a mood of optimism.

• These are reduction in duties and exemption on countervailing duty on life saving drugs and medical products by 5 per cent;
• Reduction to 8 per cent from 16 per cent the excise duty on aviation turbine fuel (ATF) which accounts for between 50 per cent to 70 percent of air fares, and the removal of the 15 per cent inland air travel tax will make air travel more affordable, in line with the Naresh Chandra committee report on civil aviation.
• The prices of computers and cell phones will come down due to the reduction in import duty from 16 per cent to 8 per cent and to 5 per cent from 10 per cent respectively. Moreover, a larger number of goods, including laptops, PCs, VCD players and VCRs will no longer be dutiable while the limit for bringing in alcohol as personal baggage has been doubled.

Highlights of indirect tax reliefs

From today, the rates of indirect taxes have been brought down in the following areas:

Reduction in customs levies

• Reduction in the peak rate of customs duty from 25 per cent to 20 per cent on non-agricultural goods.
• Abolition of the four per cent special additional duty on customs (SAD).
  
• Reduction in customs duty from 25 per cent to 10 per cent on project imports on minimum investments of
  
• Rs 5 crore in plant and machinery.
  
• Reduction in customs duty on coal from 25 per cent to 15 per cent.
  
• Reduction in customs duty from 10 per cent to 5 per cent on nickel and nickel products.

Power projects

• Reduction in customs duty from 25 per cent to 10 per cent on power transmission and distribution projects.
  
• Reduction in customs duty from 25 per cent to 15 per cent on electricity meters.

Medicines and medical products

• Reduction in customs duty to five per cent for specified life-saving bulk drugs, formulations, and medical equipment, along with exemption from countervailing duty (CVD) by way of excise duty.
  
• Reduction in customs duty to five per for artificial limbs and specified rehabilitation aids along with exemption from countervailing duty by way of excise duty.
  
• Reduction in excise duty from 16 per cent to 8 per cent on medical, surgical, dental and veterinary furniture.
  
• Exemption from excise duty on mosquito nets treated with pesticide.

Air travel

• Excise duty reduced from 16 per cent to 8 per cent on Aviation Turbine Fuel (ATF).
  
• Abolition of the 15 per cent inland air travel tax (IATT).
  
• Abolition of foreign travel tax (FTT) of Rs 500 per passenger.

IT and electronics

• Exemption from basic customs duty for specified infrastructure equipment for basic/cellular/Internet, V-Sat, radio paging and public mobile radio-trunk services and parts of such equipment.
  
• Reduction in customs duty items as per our commitments on information technology agreement (ITA).
  
• Reduction in customs duty from 15 per cent to five per cent and; from five per cent to nil on specified raw materials/inputs used for manufacture of electronic components or optical fibres/cables.
  
• Reduction in customs duty from 15 per cent and 10 per cent to nil on specified capital goods used for manufacture of electronic goods.
• Reduction in customs duty from 10 per cent to 5 per cent on cellphones.
  
• Reduction in excise duty from 16 per cent to 8 per cent on computers.
  
• Exemption from excise duty for recorded video compact discs (VCDs) and digital video discs (DVDs).

Water supply

• Exemptions from customs for drinking water supply projects has now been extended to water supply for projects for industrial as well as agricultural purposes.

Procedural simplification

• Round-the-clock electronic filing of customs documents for clearance of goods, presently available in nine custom formations, is being extended to 23 custom formations.
  
• Custom clearances will be based on self-assessment and selective examination.
  
• Manufactures will now be allowed to take out semi-finished goods and finished goods for further processing or testing, without payment of excise duty

Service tax

• Electronic filing of service tax returns, presently allowed only for 10 service categories, is being extended to all the 58 taxable services.
  
• Service providers providing more than one taxable service will be allowed to take single registration and file a single return.
  
• Only a simple verification will now be made for grant of registration for service tax.

Liberalisation of baggage rules:

• Exemption in duties under Transfer of Residence on VCD/VCR, washing machines, personal computers, laptops, cooking range and refrigerators up to 300 litre capacity.
  
• Reduction in duties under Transfer of Residence reduced from 30 per cent to 15 per cent on 17 items.
  
• Import on exposed but undeveloped cinema films, imported as part of personal baggage is being made duty-free.
  
• Quantity of alcoholic liquor/wines allowed duty-free as part of personal baggage doubled from one litre to two litres.
  
• Exempted from customs duty for laptops brought as part of personal baggage.
  

Procedural simplification for direct taxes
Since any alteration in direct taxes requires to be ratified by Parliament prior to its implementation, the finance minister has made procedural simplifications for individual tax payers. He also made it easy for taxpayers to furnish paperless returns through the Internet and linked the interest rate on housing loans to the prevailing market rate for perquisite valuation.
While the indirect tax measures come into effect from today, the direct tax procedural simplifications come into effect from April 1, 2004.

The new procedures will be effective from April 1, 2004.
The Government has decided to amend the rules and issue necessary notifications in respect of the following:

• Exemption from filing tax returns for employees with salaries up to Rs 1,50,000 if the tax payable by them is deducted at source by the employer. Salary certificates provided by employers to the Income-Tax Department will be treated as return.
  
• Pensioners who do not have taxable income to be exempted from the purview of the one-by-six scheme
  
• For perquisite valuation, rates of interest for housing loans etc, to be reduced, to bring them in line with prevailing market rates.
  
• Instead of separate certificates to several deductions, there will be just one certificate from the Assessing Officer for no tax deduction at source (TDS) in case of tax exempt entities like trusts, etc.
  
• Infrastructure projects to be granted one time approval for exemption under Section 10 (23G) place of the present system of seeking periodical renewals.
  
• Notifications in this connection will issued next week and will come into force from the next financial year (April 1, 2004)

Some administrative measures which have been proposed to introduce a taxpayer friendly regime:

• Furnishing of paperless income-tax returns by introduction of direct filing through Internet under digital signatures for salaried taxpayers, professionals like doctors, accountants, etc.
  
• Expansion of computer network to cover all 501 income-tax offices in the country by June 2004.
  
• Number of challan forms for payment of TDS will be reduced from four to one.

Comments from the leaders

The finance minister's surprise duty reliefs are being perceived by industry leaders as an attempt to rationalise industry's cost structures to enable it to emerge stronger in global markets. However, even with the peak rate of customs duty being lowered to 20 per cent, the rates are substantially higher than China's peak rate of 10 per cent and the ASEAN countries 12 per cent.

It is one thing to gamble on giveaways in an election year, quite another to put the economy sustainably on a high-growth plan, says Swaminathan S Anklesaria Aiyar, economist. The FM has managed to reap all the dividends of an election budget, without formally announcing elections or even a budget. But if he helps win the election for the coalition, he will then face several tough economic challenges. He will require more than luck to meet them.

Liberalisation and economic reforms, must translate into more greenfield investments and they must create new jobs, says P Chidambaram, former finance minister.

Automobiles, consumer durables , computers , domestic tourism and cement will be the major beneficiaries of the duty cuts. "While all the measures will help the growth and development of various sectors, one can't help but think that most of the changes have been made with the forthcoming elections in mind," feels Rahul Bajaj, chairman and managing director of Bajaj Auto,

Congratulating the union government, Vinnie Mehta, executive director, MAIT said, "The government has met a long standing demand of the IT manufacturing industry. This is indeed a significant measure to make the domestic IT industry globally competitive. The cut in excise duty and SAD will make the organised sector price competitive vis-à-vis the grey, lead to higher PC penetration in the country and help make the domestic PC market far more attractive." He added that MAIT was hopeful that its other key recommendation of increasing the rate of depreciation from 60 per cent to 100 per cent for computer hardware will also be given due consideration by the Union Government.

"The slashing of the excise duty on Aviation Turbine Fuel (ATF) is an extremely positive development. This will make air transport a much more cost-effective option for travellers,'" says D Goonetilleke Regional Manager, South Asia, Qatar Airways

"Qatar Airways believes that this move along with the abolition of the 15 per cent inland travel tax will go a long way towards increasing air traffic in India. These initiatives are in tune with the government's efforts to liberalise the air transport industry, as was evident in the limited open skies policy that the government announced in December last year."

Applauding the announcements, Anand Mahindra, vice chairman and managing director, Mahindra and Mahindra says "These reforms will firmly propel India into a higher growth orbit, and belie expectations that reforms would be put on the back burner"

"Domestic coal prices are also likely to soften, with the cost of imported coal coming down," DD Rathi, group executive president & CFO of Grasim Industries. With imported coal, becoming cheaper by over 10 per cent, companies like Gujarat Ambuja, ACC, L&T and Grasim stand to gain the most. However, Y M Deosthalee, CFO of L&T is concerned that the lowering of the import duty on coal may, however, be offset by the rising international cargo rates.

YK Modi, president, FICCI, " The duty reduction will help make the Indian economy globally competitive. These reductions could have been carried our with simultaneous deepening of labour and power sector reforms.

In the automobile sector, manufacturers feel that the bulk of the benefits would go to the "The reduction in peak custom duties will benefit automobile assemblers more than manufacturers. "Manufacturers who have a high level of indigenisation, like Maruti, Tata Motors and Hyundai will see a very marginal impact," says BVR Subbu, president, Hyundai Motors.

Raj Saraf, chairman and managing director of Zenith Computers, says "We foresee PC prices dropping to as low as Rs 15,000 by January 15,"

V Rangaraj, said that these measures would help in giving a critical push to the economy, particularly the manufacturing sector, which has been showing buoyancy in the recent months.

M Rafeeque Ahmed, President of Federation of Indian Export Organisation (FIEO), said, "The proactive way in which Government is trying to facilitate the accelerated development of commerce and industry is most welcome."

Sunil Arora, chairman and managing director, Indian Airlines that with annual savings of up to Rs 60 crore due to excise reduction on aviation turbine fuel,the airline will be able to plan its fleet renewal.

"The various positive incentives will positively affect air seat pricing and lead to a surge in domestic air travel, not only within the commerce and business realm but also on the individual travel front," Ashwini Kakkar, CEO and managing director, Thomas Cook.

"The reduction in duty for power projects imports will spur investment for new power projects," says
FA Vandrevala, managing director of Tata Power. The government, he says, has sent out a very strong signal about its emphasis on the core sector. "Though the reduction in Customs duty will lead to a one-time loss for the government, it will gain through overall economic growth."

"The interim Budget is right on time and contributes to the feel-good environment. It will surely make India shine at the World Trade Organisation negotiations. There is something for almost everyone in this mini-Budget," Harsh Goenka, chairman, RPG group, said.

Venugopal Dhoot, chairman, Videocon group, said: "The mini-Budget will multiply the feel-good factor in the economy. The tariff reduction is a move to bring it down to Association of Southeast Asian Nations (Asean) levels. Inflation is expected to go down and this will reflect on the prices of products, benefiting the consumer."