|
Even
general reforms have not found much attention. Reforms
would have meant simplification of rates by converging
towards 14 per cent for service tax and central excise and
10 per cent, 7.5 per cent and 5 per cent in customs. There
should have been a systematic removal of exemptions.
In
Central Excise, one good move that has been made is that
the rate of tax has been reduced from 16 per cent to 14
per cent, avowedly to reduce the tax burden on the
manufacturing sector. This sector does need special help
as it is an engine of growth. This sector was suffering
due to a looming recession in the outer world.
Particularly the automobile sector has been provided a
good amount of tax relief. The rate of duty has been
reduced for small cars, two wheelers and passenger three
wheelers from 16 per cent to 12 per cent, for hybrid cars
from 24 per cent to 14 per cent, for electric cars from 8
per cent to nil and specified parts of electric cars from
16 per cent to nil. Excise duty has also been fully
exempted on selected refrigeration equipment for cold
storage. The pharma sector has been given a tax break from
16 per cent to 8 per cent. Benefit has also been given to
some paper and paper products.
But
one doesn’t know why so much of tax benefit had to be
given to pan masala. It could have been reduced, in any
case, from 16 to 14 per cent. But to reduce it to 8 per
cent and even to do away with the National Calamity
Contingent Duty shows the very kind heart of the Finance
Minister for the consumer of pan masala. This may turn out
to be a case of killing by kindness.
No
attempt has been made to remove the distinction between
raw materials and capital goods for the purpose of giving
input tax credit in the Cenvat Rules. The rates of duty of
Central Excise now are as varied as 4, 8, 12, 14, 16 and
several fixed rates. The interchangeability of input tax
credit between goods and services, which is still
restrictive, could have been improved upon by making it
more comprehensive. That has also not been done.
In
customs, the situation is mostly unchanged. The so-called
peak duty for non-agricultural goods remains at 10 per
cent. This 10 per cent is not really the peak duty because
there is a very large number of rates for industrial goods
which are much higher than 10 per cent. This has been
pointed out by many analysts repeatedly, but there is none
to heed to this suggestion.
The
rates of duty have been reduced from 7.5 per cent to 5 per
cent in the case of project imports, 5 per cent to 2 per
cent in the case of crude and unrefined sulfur, from 7.5
per cent to 5 per cent in the case of specified machinery
for manufacture of sports goods, 10 per cent to 5 per cent
for some products of the information technology and
electronic industry, from 5 per cent to nil for steel
melting and aluminum scrap and so on. These are not very
major concessions.
What
strikes one as a major step is that the customs duty on
cigars and cheroots has been increased from 30 per cent to
60 per cent. The message is clear — give up cigar and
chew pan masala.
In
regard to service tax what has been done is far from the
comprehensive service tax which has been recommended by
several economists. All that has been done is to impose
tax on a few new services. They are services provided in
relation to information technology software for use in
business, service relating to management investment under
Unit Linked Insurance Plan (ULIP) schemes, service
provided by stock exchange, service provided in relation
to supply of tangible goods without transferring the right
of possession and three more services. They are unlikely
to fetch much revenue. One important service which would
have given more revenue is railway carriage service which
the Finance Minister has not touched. And another such
service is the one provided by lawyers. It seems to be a
case of extending professional courtesy.
What
is interesting is that a clarification has been given in
the budget to say that banking and other financial service
will include purchase or sale of foreign currency
including money changing by authorised dealers. This is
conceptually wrong. Buying and selling of foreign currency
is just not service. It is trade. A tax on trade is only
subject to Value Added Tax, not service tax. One just
cannot impose service tax on something which is not a
service.
Many
people have gone to High Courts and the Supreme Court on
the ground that certain imposts were not on service but
the courts have held that they are service. If they are
not service, then the courts would have set aside such
imposts. It is most likely that the courts will set aside
this impost of service tax on money changers because it is
not a service, if somebody goes to the court.
Source
: Business Standard - Mumbai, Maharashtra, India, dated
01/03/2008
|
