The Telegraph
Since 1st March, 1999
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Kelkar moots three-slab excise, customs structure

New Delhi, Oct. 29: A high-level committee on indirect taxes today released recommendations which call for a three-slab excise and customs duty structure, besides bringing in more small scale units into the excise net.

The committee, headed by former finance secretary Vijay Kelkar, also wants to bring services within the ambit of the central value added tax regime (Cenvat). However, specific recommendations will be made after the Centre completes consultations with states on their demands for powers to tax services.

Briefing newspersons on release of the consultation paper titled Task Force on Indirect Taxes, Kelkar said the focus of the committee was to reduce trading costs by about Rs 5,000 crore annually.

The consultation paper said customs duty on imports will be divided into two basic tiers of 10 per cent and 20 per cent and an additional zero duty tier for goods such as life saving drugs, defence and atomic energy-related imports. While the 10 per cent slab will be applicable on raw materials, inputs and intermediate goods, the higher 20 per cent slab will be levied on all finished goods.

Agricultural goods will attract a far higher duty of 150 per cent. Basic customs duty on petroleum and petro-products will be 10 per cent and 15 per cent respectively, topped by an excise duty of 16 per cent.

Kelkar said that central excise duty rates have been pegged at 8 per cent for food products and 16 per cent on other items. “In two years from now we will achieve the two level regime for our internal trade,” he said.

The special excise duty on certain goods, which now amount to rates as high as 32 per cent, will be reduced progressively by 4 per cent each year bringing them down to the median 16 per cent rate. A zero rate regime will also continue for life saving drugs, defence and atomic energy goods.

However, there will be separate high tariff rates for “de-merit” products like tobacco.

The duty exemption for the small scale sector will be reduced from the current Rs 1 crore mark to Rs 50 lakh by 2005-06. “This is to inspire confidence and belief among investors of small sector units that the taxation regime is pro-investors and simpler, ” Kelkar said.

However, implementation of this recommendation is likely to meet tough opposition from the politically active small-scale lobby. The BJP itself is divided on this issue. The party's support base has consisted of traders and small businessmen for decades and these supporters would understandably oppose such moves.

To boost trade, the report has also called for simpler customs procedure by providing a trust-based system called the Universal Green Channel to importers and exporters of all goods.

“The verification of declaration through pre-clearance examinations, where necessary, will be based upon risk assessment techniques and post clearance audit,” Kelkar said.

He said to allow full realisation of credit on capital goods duty the Cenvat Credit Rules, 2002, will be amended. “The rules will be amended to abolish the distinction between capital goods and inputs and allow credit of all inputs brought into the factory,” he said.

For textiles, the existing 12 per cent rate will continue till early 2005 but the deemed credit facility would be withdrawn soon.

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