The Tribune, Chandigarh, India

Thursday, May 1, 2003, Chandigarh, India

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FM rules out VAT from June 1
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Tribune News Service

Highlights

The following are the highlights of the sops announced by the Finance Minister today:

*Service tax to be extended to certain new services only after notification.

*In the powerloom sector, wherever the value of stocks declared does not exceed Rs 10,000 per powerloom, such declaration will not be subject to any scrutiny for tax purposes. This will not have any retrospective application or consequences.

*Excise exemptions for unbranded, woven and knitted readymade garments given with prescribed ceiling for first clearance and annual turnover.

*Adequate preparations before introduction of this tax reform since patchwork or ill-implementated VAT will not serve the purpose.

*No departure from the agreed list of commodities that were to be subject to 12.5 per cent rate of VAT.

*The proposed reduction in the rates of CST from 4 to 2 per cent contingent on the introduction of VAT by all major states from all regions of the country.

*100 per cent tax exemptions to offshore banking units (OBUs), set up in SEZs, for three years, plus 50 per cent tax exemptions for the subsequent two years.

New Delhi, April 30
In a clear signal of buckling under political pressure from both within and outside the NDA establishment, Finance Minister Jaswant Singh today sugarcoated the Budget proposals and announced a slew of measures, virtually ruling out the proposed VAT regime from June 1, 2003.

“It is very important that the legislation of the states are amended to conform to the model draft law, also to the agreed upon rates latest by May 5, otherwise it will not be possible to introduce VAT by June 1, 2003, as suggested by states”, Mr Jaswant Singh said during his reply to the debate on the Finance Bill in the Lok Sabha today.

The Finance Bill — 2003 was passed by the Lok Sabha today by a voice vote.

Amidst intermittent interruption from both Treasury and Opposition Benches and sit-in protest by Mr Prakash Paranjpay, a member of the key NDA ally Shiv Sena, the Finance Minister’s amended Budget package sought to address the concerns of various sectors, including textiles, services, agriculture, information technology and also those pertaining to direct taxes.

On VAT, Mr Jaswant Singh said it was necessary to take “on board the question of adequate preparations before the introduction of this tax reform”.

“That is why I said that a patchwork or an ill implemented VAT will not serve our purpose”, he said. He, however, clarified that the proposed reduction in the rate of Central sales tax from 4 to 2 per cent is contingent on the introduction of VAT by all states. “It is not desirable that in the CST, we have two regimes... CST and VAT cannot live together for long”, he said.

Regarding the confusion prevailing over the imposition of service tax, the Finance Minister clarified that the tax would come into effect from a date that was yet to be notified.

Moreover, whatever service tax is rendered in Jammu and Kashmir or exported abroad will be outside the scope of the proposed service tax.

Mr Jaswant Singh also announced sops to the textile sector which will face stiff competition once the multi-fibre agreement (MFA) regime comes into force from next year.

Small powerloom owners, operating up to eight to 10 looms, will be fully exempt from duty and the choice of registering or opting out of CENVAT will be theirs. Moreover, whenever the value of stocks declared does not exceed Rs 10,000 per powerloom, such declaration will not be subject to any scrutiny for tax purposes.

Concessional customs duty of 5 per cent expanded to cover 117 more categories of textiles machinery and their parts, besides extending the concessional customs duty of 10 per cent to twisters and rewinding machines.

Excise exemptions for unbranded, woven and knitted readymade garments has been given with prescribed ceiling for clearance of Rs 25 lakh and an annual turnover of Rs 30 lakh.

Exemption schemes proposed for garments have been extended to rubberised textile fabrics, cotton belting, mosquito nets and fabrics of mono- filament. Excise duty on predominantly hand processed fabrics has been reduced from 10 per cent to 5 per cent and from 10 per cent to 8 per cent for other fabrics. For interlining fabrics, the excise duty has been reduced from 16 per cent to 10 per cent, while the import duty on rags has been reduced from 25 per cent to 5 per cent.

On direct taxes, Mr Jaswant Singh announced 100 per cent tax exemptions to offshore banking units (OBUs), set up in special economic zones (SEZs) for three years, including 50 per cent tax exemptions for the subsequent two years.

He also exempted from income tax capital gains accruing to political parties. The exemption on long-term capital gains on equity shares to only those appearing in the list of BSE 500 as on March 1, 2003, and listed in recognised stock exchanges before March 1, 2004.

Moreover, income earned on insurance policies taken before April 1, 2003, would continue to enjoy tax exemptions.

Sportspersons have received special attention from the Finance Minister and has been provided deduction up to Rs 75,000 from the income received as professional fee to all sportsmen participating in games and sporting events. Income of a sportsperson, in both cash and kind, by way of approved reward or award from specified institutions is already exempt from tax. Mr Jaswant Singh said the government would also consider the demand for additional funds for sports, particularly in light of preparations for the Olympics.

Announcing indirect tax concessions, he said hand pumps would be fully exempt from excise duty.

Metcoke, used in iron and steel industry, would be exempted from special additional duty (SAD). So also, nickel oxide sinter and unwrought nickel used in steel making.

He also fully exempted from excise duty nictonine ploacrilex gum and reduced excise duty from 16 to 8 per cent on tiles made by units not using electricity or petroleum fuel for firing the kilns, but used firewood or other agro-waste. He reduced customs duty on specified capital equipment for the IT industry from 15 per cent to 10 per cent.

Customs duty on decorative transparent films and dyestuffs used in the manufacturing of writing instruments have been reduced from 25 per cent to 15 per cent.