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Tax Revenues

 

Highlights
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Non Plan Expenditure
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Tax Revenues

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117. Mr. Speaker, Sir, Our medium-term objective is to enhance the tax-GDP ratio. As far as customs duties are concerned the process of restructuring has resulted in a progressive reduction in tariffs, with a view to align these with internationally acceptable levels, and the broadbanding of rates. These measures have enhanced the competitveness of Indian industry.

118. On the excise side, until a few years ago the regime was characterised by a multiplicity of rates and punctuated with numerous ad hoc exemptions. As a result, the tax structure was opaque. It is the objective of the present proposals to introduce greater transparency in the system through a significant rationalisation of rates. The ultimate objective of this process is to move towards a Central Value-Added Tax (VAT) system which can then be merged with a generalised VAT. It is our intention to move in this broad direction.

119. The domestic industry has responded favourably to the restructuring of customs duties and has shown commendable resilience. They need to improve their competitive efficiency to meet the challenges of global competition. But they also have legitimate concerns which cannot be ignored. In this background, the path of transition has to be carefully calibrated to ensure that the adjustment process for the Indian industry is orderly without leading to serious disruption.

120. I have received representations from a cross section of the industry about the regime of import duties. Many Honorable Members have also written to me expressing their concern on the general health of the domestic industry. The demands are diverse and asymmetrical in most cases. This is for obvious reasons. While the users of imported raw materials and other inputs or the consumers of finished imported goods would benefit from further reduction in import duties, the domestic producers have made a convincing case for urgent relief to the domestic industry.

121. I have given my earnest consideration to these concerns and the competing claims. I am persuaded about a clear disability that our commodity taxation inflicts on the indigenous goods vis-a-vis the imported goods. While the former are subjected to sales tax and other local taxes and levies, the import sector escapes them by their very nature. In order to provide a level playing-field to the domestic industry, I propose to impose an additional non-modvatable levy of 8% on imports which is approximately equal to the burden of local taxes on domestic producers. This duty should not be viewed as a protectionist measure but only as a response to a legitimate demand for a level playing field. The new levy would not apply to crude oil, newsprint, capital goods sector under a special tariff regime or goods which are subjected to additional duties of excise in lieu of sales tax, gold and silver imported by passengers or other nominated agencies and life saving drugs that are free from customs duties. The levy would also not apply to goods which are currently exempt both from basic and additional duties of customs.

Similarly, goods imported for subsequent trading have also been left out of its purview, since they bear the burden of Sales tax at the time of first sale. The new levy will also not apply to inputs imported under export-promotion schemes. In addition, there may be other sectors eligible for exemptions. These would be examined and if considered appropriate notified separately.

122. The gradual reduction of import duties in the past few years has resulted in certain distortions and anomalies. My proposals seek to correct them as far as found feasible without causing abrupt disruption in the duty structure.

123. The steel industry has shown considerable resilience in the past to withstand gradual reduction in customs duties. Last year, however, the steel industry has not shown any appreciable growth. I propose to increase the customs duty on cold rolled coils of iron and steel from 25% to 30%. I also propose to reduce the duty on stainless steel melting scrap from 10% to 5% and on refractory ceramic goods from 40% to 30%. I am confident that these changes alongwith the imposition of the special additional duty that I have proposed on the imports in general would provide adequate relief to the steel industry.

124. The duty on wrought copper is being raised from 30% to 35%.

125. I do not intend to make any other changes in the duty structure applicable to ferrous and non-ferrous metals.

126. Textile intermediates like DMT, PTA, MEG attract customs duty at 25%. However, caprolactum which is the raw material for making nylon yarn is subjected to a higher duty of 30% . I am reducing the duty on caprolactum also to the level of 25% so that all the major textile intermediates attract the same rate of duty. The import duty on paraxylene, an important input for synthetic fibres and yarn, is being reduced from a total of 15% to 5%.

127. The decentralised sector of the textile industry generates avenues for employment. It deserves to be encouraged by reducing cost. I propose to reduce customs duty on apparel grade raw wool from a total of 25% to 20%. The duty on wool waste and garnetted stock of wool is also being reduced by the same extent. I also propose to reduce the duty on acetate and cuprammoniun filament yarn from 30% to 20%. In the same vein, machinery required for viscose filament yarn and woollen industry is being accorded the concessional duty of 10%

128. The import of paper and paper board has shown phenomenal growth in terms of quantity. In order to improve the competitiveness of the domestic producers, I propose to increase the customs duty on paper and paper board from 20% to 30%.

129. Mr. Speaker, Sir, my government values the right to information. With a view to further strengthen this right, I propose to reduce customs duty on standard newsprint from 10% to 5%. I also propose to rationalise the duty structure by subjecting glazed newsprint to the same rate of duty. Furthermore, I also intend to exempt newsprint from the applicability of 8% across the board special additional duty.

130. I also propose to reduce the duty on light weight coated paper weighing upto 51 grams per square metre for printing of magazines to a total of 5%.

131. The customs duty on photographic chemicals is being raised from 25% to 30%. Similarly, the duty on citric acid is being increased from 30% to 40%.

132. I propose to reduce the customs duty on jumbo rolls of cinematographic film from 25% to10%.

133. Motor vehicle parts are generally subjected to customs duty at 40%. However, I.C. engines and parts thereof for motor vehicles attract a lower rate of 20%. I propose to raise the customs duty thereon to 30%.

134. I propose to reduce the duty on industrial diamonds from 30% to 20%. This would help the diamond cutting tool industry.

135. As a measure of rationalisation, I propose to reduce the duty on rayon-grade wood pulp from 10% to 5%.

136. Thalassaemia is a life-threatening blood-disorder. There have been requests for exempting maltol, an input used in the manufacture of drugs for the treatment of this disorder. I propose to fully exempt maltol from customs duty. Hydroxy ethyl starch and dextran are used in the manufacture of artificial plasma which is free from import duty. I propose to reduce the burden of duty on artificial plasma by reducing the duty on hydroxy ethyl strach and dextran from 30% to 5%. I also propose to exempt Lamivudine, which is used for the treatment of AIDS, from customs duty.

137. Leather industry contributes significantly to our export effort. In order to encourage its export, I propose to reduce the duty on specified machinery for leather industry from 20% to 5%. This would also be the rate applicable to leather splitting machinery. I also propose to reduce the duty on saddle trees from 30% to 10%.

138. Sir, the House is aware that India has joined the Information Technology Agreement. We are committed to abolish the import duty on products of information technology. This is not because we are bound by the ITA but because we are convinced that spread of information technology and freer exchange of information is the key to success and human welfare. I propose to reduce the duty on floppy disk drives, hard disk drives and CD-ROM drives from a total of 12% to 5%. The duty on ICs of value exceeding one thousand rupees per piece is also being reduced to 5%. I also propose to reduce the duty on computer parts excluding PPCB from a total of 15% to 12%. The duty on PPCB is being reduced from a total of 25% to 22%. I also propose to reduce the duty on cathode ray tubes for colour monitors for computers from a total of 15% to 5% and on deflection components for colour monitors for computers from a total of 25% to 5%. My proposals also include reduction in duty on telecom software from 40% to 30%. Such software henceforth will not be subject to any additional duty of customs.

139. In order to encourage the domestic telecom equipment sector, I propose to reduce the duty on parts of such equipment to 20%.

140. As a measure of environmental protection, I propose to reduce the import duty on sawn wood and certain other varieties of wood from 30% to 25%. I also propose to reduce the duty on biopesticides, which are eco-friendly , from 30% to 5%. With the same objective, I have proposed reduction of duty on membrane electrolysers and parts from 25% to 10%.

141. The duty on spodumene, which is an energy saving material, is being reduced from 25% to 10%. On silicon, which is widely used in solar energy applications, I propose to reduce the duty to half of the existing 10%.

I propose to reduce the duty on -

Solar cells and modules from 30% to 20%,

Button cells from 20% to 10% ,

Watch movements from 25% to 20%,

DC micro motors from 40% to 20%,

CD mechanism from 40% to 30%.

142. Mr. Speaker Sir, good roads are a necessity for social and economic development. I am sure that those of us who are privileged to afford personalised vehicles can afford to contribute to the faster development of good roads in the country. I propose to charge an additional tax at the rate of rupee one per litre on petrol with immediate effect. This is expected to generate an amount of Rs.790 crore in a year which will be used for the development of roads and entirely go towards augmenting the corpus of the National Highways Authority of India. I propose to extend the concessions presently available to import of equipment for construction of National Highways to other road-construction projects also.

143. The importers of precious yellow metal can certainly afford to contribute a bit more to the national exchequer. I propose to increase the import duty on gold from 220 rupees per ten grams to 250 rupees per ten grams.

144. The duty free allowance for baggage is Rs.6000 at present. Many countries do not impose any such restrictions. While we may not follow them there is need to increase the present limit to reduce delays in clearance of passengers. I propose to increase the baggage allowance from Rs.6000 to Rs.12000 for passengers returning to India after a stay exceeding three days. I also propose to extend free allowance of Rs.3000 to Indian residents returning from Nepal, Bhutan, Myanmar or China by air, after a stay exceeding three days.

145. There are a number of items on which it is necessary to reduce the customs duties marginally on account of GATT binding. I do not wish to take the time of the House in going into the details.

146. The government is committed to provide a tax code which is consistent with dismantling of administered pricing mechanism of petroleum products in a phased manner. By the year 2001, the import duty on crude has to be reduced from the current level of 27% to not more than 5%. The import duty on down stream products like furnace oil, LSHS, HSD oil, motor spirit and ATF has also to be reduced to the level of 10% to 15%. In this process, we will ensure an effective protection not exceeding 20% for downstream industry by suitable differential and calibration of import duty structure.

147. I have initiated the process of implementing the decisions arising from the dismantling of administered pricing mechanism. I propose to reduce the customs duty on crude from a total of 27% to 22%. This is estimated to result in a revenue loss of Rs.965 crore in a year. In order to recoup the loss, I propose to increase the excise duty on motor spirit from 20% to 35%. I also propose to impose customs duty on kerosene imported for parallel marketing at 32%, including special duty of 2%.

148. I now come to my proposals on central excise.

149. Mr. Speaker, Sir, The contribution of the small scale sector in the economy cannot be over emphasised. It is a critical fast track for generating employment thus promising support to thousands of families. The predecessor governments have been sympathetic to the small scale sector but I am afraid they have not done enough to encourage them so as to exploit their full potential. The fiscal incentives provided to the small scale sector have been rather meagre for a number of years.

150. I have taken certain important steps in this direction. I propose to raise the exemption limit for excise purpose from Rs.30 lakhs to Rs.50 lakhs, an increase of about 65%. The clearances between Rs.50 lakhs to Rs.100 lakhs shall be charged to a flat nominal rate of 5%. These proposals would result in a revenue loss of Rs.300 crore in a year. This is a small price to pay to restore to health this vital sector of our economy.

151. Over the years the scheme of Modvat credit has been considerably liberalised. However, the amount of Modvat credit availed has grown unexpectedly fast in recent years, suggesting misuse of the Modvat credit scheme in the absence of a comprehensive computer net work for cross-checking modvatable invoices from a-flung ranges. Until such a computer network becomes functional, and as a transitional measure, I propose to restrict the availability of Modvat credit by 5% of the duty paid in the case of inputs used in the manufacture of excisable goods. However, no restriction is placed on the Modvat credit in respect of capital goods.

152. My proposals regarding other changes in excise duty are guided by the overall need to rationalise the rate-structure so as to reduce the multiplicity of rates and ensure convergence towards a mean rate of 18% ad valorem. An ideal tax structure would be one where, barring the mean rate, there is one lower rate for items deserving concession and a higher rate for what may be described as demerit goods. This would minimise the oscillations in rates and call for compression of intermediate rates.

153. As a first step towards a convergence to the mean rate, I propose to impose excise duty of 8% on certain commodities. These include :

Packaged tea,

Branded butter, cheese and ghee,

sewing machines, other than hand operated,

branded spices,

branded edible preparations when produced in factories,

preparations of meat and fish sold under a brand name,

skimmed milk powder other than for infant feeding

tractors not exceeding 1800 cc, spectacle lenses and frames , and

slide fasteners.

154. I also propose to charge excise duty on exempted articles of plastics at a flat rate of 5% on clearances in excess of Rs.1 crore in a financial year.

155. In the same spirit, I propose to increase the excise duty on medical instruments and appliances as also on pollution control equipment from 5% to 8%.

156. A good number of commodities are subject to excise duty at 8%. Some of them can bear a higher duty. I , therefore, propose to increase the excise duty on these commodities to 13%.

157. As a result, malt, certain types of cartons, medical furniture,

sun glasses and unrecorded audio cassettes will henceforth be subjected to duty at 13%.

158. As a measure of rationalisation, I propose to increase the duty on arms and ammunition from 18% to 25%. I, however, assure the House that arms and ammunition for the military services will continue to be exempt from excise duty.

159. I propose to raise the duty on multi-utility vehicles from 25% to 30% and on solid or cushion tyres also from 25% to 30%.

160. I also propose to raise the duty on marble tiles from Rs.30 to Rs.40 per square metre.

161. My proposals also include reduction of excise duty on:

Effluent treatment plants from 13% to 8%

Diesel engine sets upto 10 HP from 13% to 8%

Surgical and medical, examination gloves from 18% to 8%,

Potassium iodate from 18% to 8%,

Electronic calculators from 18% to 8%

Pagers from 18% to 13%,

Cellophane from 25% to 18%.

PVC compound from 25% to 18%.

162. I propose to exempt 100% wood-free particle boards and fibre boards made from agro-based residues from excise duty. Henceforth, cement bonded particle board, jute particle board, rice husk board, glass fibre reinforced gypsum board, sisal fibre board and bagasse board will also be free from excise duty. I also propose to exempt blocks and bricks containing more than 25% fly ash, ready mixed concrete, jute blankets and jute felt from excise duty. Henceforth, pultruded jute articles shall also be free from excise duty.

163. I propose to exempt recorded audio cassettes from excise duty. I also propose to exempt recorded video cassettes intended for television broadcasting from excise duty. The exemption for computer software will now be broad-banded to cover all software.

164. The domestic nylon industry is stagnating for various reasons. I propose to reduce the duty on nylon filament yarn from 30% to 25%.

165. Finance Ministers are often criticised by the tax payers for their compulsive habit to increase the burden of taxes. However, such complaint cannot be justified by compulsive smokers. I propose to increase the excise duty on cigarettes by varying degrees ranging from 6% to 11% of the specific rates.

166. I have no intention of being harsh on smokers all the way. Accordingly, I propose to reduce excise duty on matches manufactured in the cottage sector by half from Rs.0.50 to Rs.0.25 per hundred boxes. A smaller reduction is also being made in respect of matches manufactured by other sectors.

167. High rates of duties are known to induce evasion and avoidance. I propose to reduce the excise duty on alcohol-based toilet preparations from 100% to 50%. I expect that this will improve compliance and States will get more revenue.

168. The Maximum Retail Price (MRP) based excise levy introduced last year in respect of certain products has been welcomed by the industry. This scheme provides for simplification and certainty in taxation. I propose to extend this scheme to a few more commodities, such as chocolates, malted food preparations, glazed tiles, razor blades, radio sets, domestic electrical appliances and pan masala.

169. In the last budget, a number of services were added in the tax net. These included the service rendered on transportation of goods by road. The House is aware that it led to wide spread resistance and protests. As a result, this service tax was virtually kept in abeyance and rightly so. I have decided to abolish the service tax on transportation of goods by road. I have also decided to abolish the service tax payable by outdoor caterers and pandal contractors. However, I have proposed service tax on some new services. These are services provided by :



>Architects

Interior decorators

Management consultants

Chartered Accountants

Cost Accountants

Company Secretaries

Private security services

Real estate agents and real estate

Market research agencies

Credit Rating Agencies

Underwriting agencies

Slaughter houses using mechanised means for large animals

We will examine how in respect of certain segments liable to Service Tax, the manner and mode of payment could be further simplified to improve compliance. These new service taxes will yield Rs.220 crore in a full year.

170. My proposals relating to customs duties are estimated to result in a net gain of Rs.3,304 crore in one year. In case of excise duties, my proposals are estimated to result in gain of Rs.5,009 crore.

171. Mr. Speaker, Sir, there can be no two opinions that we must increase the level of voluntary compliance and our tax procedures should be simple, transparent and hassle free. Our tax laws are yet to achieve this objective even though considerable efforts have been made in the past.

172. Our laws are not in tune with the need of the times. It is imperative that they should be rebuilt on a comprehensive basis and modified to make them truly modern. I am conscious that it is not an easy task. But it is also not impossible. I have decided to set up an Expert Group to recast the central excise law. It will be my Government's endeavour to bring a new excise law before Parliament in the next budget session of this House.

173. The government have also decided to set up a Settlement Commission for settlement of certain categories of disputes relating to customs and excise duties. The details of the scheme are contained in the Finance Bill. I also propose to set up an authority for Advance Tax Rulings for Excise and Customs in view of the need for foreign investors to be assured in advance of their likely indirect tax liability. A bill to this effect will be introduced in Parliament in due course of time.

174. Mr. Speaker, Sir, with our courage, determination and conviction, we freed ourselves from the British Raj more than fifty years ago. This year the nation takes pride in celebrating the 50th year of Independence. Our trade and industry, however, is still not free from another Raj, namely, the Inspector Raj. We are committed to put an end to this in the shortest possible time. I am of the view that we owe it to our taxpayers to provide a competent, efficient, sensitive and responsive tax administration. Indeed, it is long overdue.

175. There is a widespread feeling that the operation and implementation of excise laws leads to harassment of the assessees. We are earnestly desirous of bringing about systemic changes to remedy the situation. Some of the more important measures that are proposed, are:

Minimising the contact points between the officials and assessees,

r educing areas which require permission or approval

Providing respectability to orders passed by Commissioner (Appeals) and the Tribunal.

Simplifying the procedure for second appeal in Modvat cases and

restricting factory visits by the staff.

176. I am conscious of the fact that there is strong resentment against the procedures and legal obligations relating to service tax. I have removed a number of obnoxious and deterrent provisions in law. I also propose to abolish several of the redundant and irritating central excise rules very shortly.

177. On the customs side, I have decided to strengthen the initiatives already taken in the form of Fast Track Clearance Systems and the Self-Assessment System in import clearance. Computerisation in both Customs and Central Excise departments will be completed expeditiously so that information can be obtained from the assessees and the importers and exporters through electronic media thereby reducing contact between the assessees and the department.

178. I am introducing a new culture of time-bound action by officials of the Customs and Central Excise department. A Citizens' Charter is being released shortly to lay down the citizen's rights and the obligations cast on the customs and excise officials.

179. Copies of notifications giving effect to the above changes in customs and excise duties will be laid on the Table of the House in due course.

180. Finally, I have something to say on behalf of my Hon'ble colleague, the Minister of Communications. Postal service is highly employment-intensive and salary and allowances constitute a major part of the operating expenses of the postal department. A revision of tariff for postal services has become unavoidable. However, in the interest of the common man and the role of the print media in a democracy, there will be no change in the tariff for postcard and registered newspapers. However, the rate of competition postcard is being raised from Rs.2 to Rs.3, Inland letter from Re.1 to Rs.1.50, letter from Rs.2 to Rs.3 for every 20 gms. or part thereof and parcels from Rs.8 to Rs.10 for every 500 gms. or part thereof. There are also certain other changes which are explained in the Memorandum circulated along with the budget documents. The changes would take effect from a date to be notified after the Finance Bill is passed. The revisions proposed are estimated to yield an additional revenue of about Rs.270 crore in a full year and about Rs.180 crore in 1998-99. Even this modest increase, which is necessary for sustaining postal development, will only partially meet the cost of postal services leaving an uncovered postal deficit of about Rs.695 crore.

181. As a result of my tax proposals and the postal tariff revision, total expenditure of the Central government for the year 1998-99 would be marginally reduced to Rs.2,67,927 crore while the net revenue receipts and non-debt capital receipts would increase to Rs.1,76,902 crore. The revenue deficit is placed at Rs.48,068 crore which is 3% of GDP. The fiscal deficit is placed at Rs.91,025 crore which is 5.6% of GDP. With the present state of the economy and in view of the need for expenditure stimulus to growth, I believe further compression is not warranted this year.

182. Sir, it is my firm conviction that in the days to come India will stand tall on the world's stage because of our commitment to democracy and the pursuit of prosperity. I call upon you to join us to strengthen freedom and opportunity, I call upon you to join us to build a better future for every man, woman and child. As we move together and with discipline, the future is ours. In the words of Ramdhari Singh Dinkar :
Rise O' warrior march ahead undaunted
You are the Creator of future history
The stars of the dark night are fading
The whole sky belongs to you.


183. Mr. Speaker, Sir, with these words, I commend the budget to this august House.

 

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