Delhi: In a meeting with
revenue secretary Dr S Narayan on the Union Budget for the
fiscal 2002-03 here, the Confederation of Indian Industry
(CII) presented a roadmap for customs rationalisation. In
the backdrop of the statement of Finance Minister Yashwant
Sinha in the last Budget to bring down the peak tariff to
20 per cent over the next three years, CII said the roadmap
could be the best possible route towards achieving this.
Currently, according to CII, out of 5,132 tariff lines, 4,703
(91.7 per cent) belong to the common rates of 5,15, 25 and 35 per
cent, and there are 19 additional rates ranging from 0 to 210 per
cent covering 430 tariff lines. Therefore, there are 23 ad
valorem and one specific rate at present.
In the rationalisation process, CII suggested that the number of
common rates could be brought down to three and the exceptional
rates to a maximum of five. This, however, does not mean that all
items within a particular rate of duty at present move towards a
reduced rate as suggested in the roadmap.
Rather, CII stressed, an item-wise analysis is needed to adjust
various items in different proposed slabs. While reducing duties
on the end products, it is essential that the duty on their inputs
is also reduced either by tariff or by notification, CII said.
CII said there is also a need to carefully calibrate the process
by following certain basic principles. The first principle was
that the rationalisation process must closely correspond to
internal domestic reforms in infrastructure, financial sector and
labour with a clear roadmap.
The second principle is in regard to the rate structure, which
should primarily encourage greater value-addition within the
country. The third principle is that the net effect of duties must
never result in negative effective rates of protection.
The other basic necessities are the need to bring down rates to
three common and five exceptional from four common and 18
exceptional rates besides zero at present and the need to avoid
duty escalation as far as possible.
CII said the present rate of special excise duty (SED) of 16 per
cent on some commodities on top of proposed state RNR VAT rate of
10 to 14 per cent and likely SAT is very high, especially when
growth in industry is down. In this scenario, CII suggested a
reduction of SED to 8 per cent on select items such as
air-conditioners, passenger cars, multi-utility vehicles and
aerated soft drinks in the Budget.
CIIs suggestions to the revenue secretary also included a set
of measures to act as a stimulus package for industry, which is
currently undergoing possibly the worst phase of slowdown for a
long time. These measures covered both direct as well as indirect
On the direct tax front, stimulus to industry can be provided
through a 5-percentage reduction in corporate tax from 35 per cent
to 30 per cent, which would also allow corporates to generate more
internal resources for further deployment. With the move towards
withdrawal of exemptions and phasing out of deductions, a
reduction in the corporate tax rate would compensate these as well
as ensure voluntary compliance.
CII also called for the need to correct anomalies in customs duty
structure, which fall into three categories, as far as possible.
Giving instances of the three categories, CII said a product such
as cables for telecommunications is in the first category where
the duty on components and raw materials are higher than the
Twenty-one specified capital goods required for road construction
fall in the second category where customs duties have been
exempted for certain purposes, but the indigenous manufacturers
have not been given corresponding benefits on their inputs. On the
other hand battery lead acid type and lead fell in the third
category where the customs duty on major inputs are at par with
the finished products, thereby affecting value-addition.
On special additional duty (SAD), which was introduced in 1998-99
to compensate for the sales tax and other local levies and imposed
on imports by traders also in 2000-01, CII was of the opinion that
it can continue since it compensates for local levies. However,
with the phasing out of the Central Sales Tax on the anvil, it can
be reduced correspondingly, CII felt.
While the Cenvat of 16 per cent has brought
in fundamental rationalisation, CII suggested that, corresponding
to a widening of the tax net, it could be brought down by 1 to 2
per cent in the future. The additional excise duty (AED) currently
levied on textiles, sugar and tobacco being in lieu of sales tax
does not allow set-off under Cenvat. CII said the continuation of
AED in its present form will lead to a break in the VAT chain. CII
has, therefore, suggested that the AED be replaced by VAT.
Suggesting a switch-over to an eight-digit code for customs,
excise, Exim policy and data collection would solve the problems
in the present six-digit classification code which is resulting in
classification disputes particularly for goods appearing in the
others category. In addition, it will also be useful for
prescribing bound rates for a particular product in future WTO
negotiations on tariff.
The other direct tax measures covered by CII in the meeting
included valuation of perquisites and tax deducted at source (TDS).
On the valuation of perquisites the three suggestions made by CII
i) stipulating specific realistic value for each perquisite
ii) instead of actual, the perquisites should be as recorded or
declared by the employer and validated by audit or tax authorities
the need for identical treatment for all salaried class - that is,
the government, PSU and the private sector.
Urging the need to simplify TDS procedures, CII said all
payouts where PAN is stated in the payment documents or records,
no TDS should be deducted. Where PAN is not mentioned, deduction
at prescribed flat rate with no adjustment or credit should be