The Telegraph
Since 1st March, 1999
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Anomaly in duties to be rectified

New Delhi, April 8: The government will set up a committee to examine the inverted duty structure in the country under which industry ends up paying a higher amount of duty on raw materials than on finished products.

Addressing a Ficci-sponsored meet here, commerce secretary S.N. Menon said the committee would be headed by a member of the Planning Commission and have senior officials of the department of revenue and commerce as members.

Menon said all irritants in the way of exports would be ironed out to provide the exporting community a hassle-free environment. The committee will suggest ways to address the problem of an inverted duty structure.

The department of industrial policy and promotion (DIPP) has asked the finance ministry to correct the inverted duty structure on a few product lines under the India-Thailand free trade agreement (FTA).

The duty structure is said to be ‘inverted’ when the import duty on the raw material turns out to be higher than the finished product. Such a duty structure could render the relevant manufacturing process non-competitive in the country.

In case of a free trade agreement, the problem is compounded if these inputs can be imported into the partner country under lower tax rates. For example, in the case of India-Thailand FTA, the fallout of an inverted duty structure could be that Indian companies shifting products to Thailand to cut costs.

Concerns have been expressed about the adverse fallout of an inverted duty structure in the auto component industry. The domestic industry has expressed fears that the global competitiveness of India’s auto component companies might get eroded by the special tariff dispensations under FTAs.

Meanwhile, director-general of foreign trade (DGFT), K.T Chacko said efforts are on to co-opt the states in the export promotion initiatives.

Addressing a meeting organised by the CII, he said, “We have been talking to various states to tell them that exports are not solely the responsibility of the Centre and they should also take steps like reducing transaction costs and create an infrastructure to encourage exports.”

“We are calling for a list of steps taken by some states, particularly in north India, which will be circulated to other states,” said Chacko.

He said the government’s decision on payment on interest on delayed refunds reflects its responsibility to pay in real time. This would result in increase in accountability within the government with the focus on delivery and creation of an enabling environment.

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