Small Scale Industry
Investment in Industry
Develop North East
Estimates for 1998
Assistance to States
Non Plan Expenditure
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
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
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%
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
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
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 :
Branded butter, cheese and ghee,
sewing machines, other than hand operated,
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
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
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
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 :
Private security services
Real estate agents and real estate
Market research agencies
Credit Rating 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
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
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,
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.