New Delhi, Feb. 28: Duty rationalisation in indirect taxes — excise and customs duty —formed a prime component of what can be termed as the mixture of a tax reform and populism-oriented budget unveiled by finance minister Jaswant Singh today.
Lauding the work done by the three task forces on indirect taxes, the minister emphasised the need to move away from an exemption and discretion-based system that leads to harassment and coercion towards a trust-based ‘green channel’ system.
As part of the continuing process of rate rationalisation and reduction of peak rates in indirect taxes, the peak customs duty rate has been brought down from 30 per cent to 25 per cent, excluding agriculture and dairy products.
In excise duty a three-tier structure of 8, 16 and 24 per cent will be introduced. This would not cover petroleum, tobacco and pan masala products. Excise duty on motor cars has been reduced from 32 per cent to 24 per cent, which is expected to give a big boost to the automobile industry. Excise duty on tyres, aerated soft drinks, polyester filament yarn, air conditioners is also being reduced from 32 to 24 per cent. To help people give up their addiction to tobacco and its products, excise duty on nicotine polacrilex gum shall be reduced from 16 to 8 per cent.
Speaking on the reduction of excise duty in aerated drinks, a Pepsi spokesperson said, “For the soft drink industry, it is a welcome step in the right direction. However, with 5 per cent reduction in abatement, the effective reduction in excise duty is 2.8 per cent. We have already reduced prices of soft drinks by 20 per cent, which is a considerably greater reduction than the 2.8 per cent relief. The combined indirect tax remains very high 25 per cent , if we combine excise and proposed VAT.”
The basic custom duty on alcoholic liquor will come down to 166 per cent in conformity with India’s WTO commitments. The budget has also proposed to rationalise countervailing duty for imported alcoholic beverages including wines.
“The government’s proposed reduction of basic duties to 166 per cent is a welcome move in the right direction. While the consumer would have benefited substantially with a reduction to 150 per cent, this moderate reduction signifies the government’s willingness to be more unrestricted. But until the additional duty is not removed, there will not be any material benefit to the consumer,” said Amrit Kiran Singh, vice-president & area director, South Asia, Brown Forman Spirits Worldwide.
Customs duty on life-saving equipment has been cut from 25 per cent to 5 per cent. On the other hand, those life saving drugs which at present attract 5 per cent from customs will also be exempt from excise. Basic customs duty on glucometer and strips will be reduced from 10 to 5 per cent.
The pharmaceutical industry was very upbeat about this duty rationalisation. D.G. Shah, secretary general, Indian Pharmaceutical Alliance (IPA) said that for the first time, a level playing field will be brought in domestic manufacture of life saving drugs.
About 150 drugs made in the country will be benefit from the move including quite a few anti cancer drugs being made by Cipla as also life-saving drugs made by Sun Pharmaceuticals, to name a few companies, said Shah.
His point was reiterated by Rajiv Gulati, managing director, Eli Lilly and Company (India) Limited. “Excise and duty rationalisation in life saving drugs has brought about level playing field for both Indian and MNC companies,” he said.
Customs duty on specified electronics and IT industry is also being reduced in keeping with WTO requirement. customs duty on optical fibre has been reduced from 25 per cent to 20 per cent.