Saturday, February 9, 2008

Budget Watch: Rejig In Duty Structure On Cards

NEW DELHI: Finance minister P Chidambaram may not announce any change in peak customs duty in the forthcoming Budget, but a rejig in duty structure to correct the inverted tax structure in certain sectors may be on the cards.

This is primarily to give some relief to certain manufacturing sectors like colour television, tyre, certain chemicals and electric fans. These sectors have also been affected by the rapid rise in the value of the rupee, which has taken the sheen off exports.

Inverted duty structure implies a tariff structure where raw material attracts higher duty than the finished product. This structure renders manufacturing process uncompetitive and impacts the domestic industry adversely.

The government is facing pressure from industry to correct anomalies in the tariff structure. Sources said a correction may be carried out in some sectors, especially where the impact is maximum.

For example, in the case of tyres, while natural rubber imports attract a basic customs duty of 70%, tyre imports attract a significantly lower duty of 10%. The basic customs duty on electric fan is 10% and that on stampings which are used for its manufacture is also 10%.

In the case of picture tubes, its main input, glass, attracts a 10% duty, which is same as the duty on the finished product, the television. Ceramic products attract lower duties at 5.375% while raw materials like abrasives, dyes and cutting tools attract 10%. The government had in 2006 set up a committee under Anwar-ul Hoda to examine the inverted duty structure. Although the committee’s report came in well before the last Budget, it was not implemented.

Sources said the general structure can be tinkered with only if an inverted duty is a product of the existing duty structure and not an outcome of concessions offered in bilateral agreements. At present, the peak customs duty is 10% and if the government adheres to the voluntary reduction to align it with Asean levels, it will come down to 7.5%.

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