The commerce ministry saw many of its major proposals watered down in Budget 2011-12.
Far from being a goody bag, as the commerce and industry ministry would have expected, Budget 2011-12 turned out to be quite a disappointment for the ministry.
According to a senior commerce ministry official, the Budget sought to withdraw some significant stimulus measures “in a clandestine manner”, which would affect exports and lead to impediments in efforts to achieve $450 billion worth of exports by 2013-14, from around $250 billion at present.
The Budget withdrew interest subvention scheme on handicrafts, carpets, handlooms and small & medium enterprises, which had faced the greatest deceleration during the global economic slowdown and had just about begun to look up. The finance ministry also turned down the proposal to extend tax benefits under Sections 10A and 10B.
In a major blow to textile exporters, the finance ministry imposed 10 per cent excise duty on branded garments and made-ups and brought these under a compulsory duty regime.
It also imposed an additional one per cent excise on branded gold items. Therefore, textile exporters come under the Cenvat cycle, which was optional earlier.
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Some of the important recommendations of the commerce ministry that were turned down in the Budget relate to amendment in Section 10B (3) to permit income tax in case realisation of payment within 12 months (according to RBI guidelines), allowing weighted average deduction on research & development in computing MAT and introduction of presumptive tax in the gems & jewellery sector.
Besides, the Budget also ignored proposals such as reduction of import duty on coffee plantation mechanism, introduction of presumptive tax in the gems & jewellery sector and lowering Customs duty on filter paper, multi-wall paper and nylon cloth for tea bags.
However, there also were a few positive measures that were hailed by exporters. These include simplification of mechanism for service tax refund. Besides, some specific measures were announced for the sectors that employ large number of people and those that had been enjoying fiscal benefits. A scheme for self-assessment by exporters and importers will be introduced in Customs, while the department will verify some cases.
For the leather sector, the finance ministry approved the creation of seven mega clusters and allowed enzyme-based preparation for pre-tanning complete exemption from basic excise duty. For the gems & jewellery sector, the government gave an additional Rs 500 crore, proposed to be provided under the National Skill Development Fund.
| COMMERCE MINISTRY’S BUDGET WISHLIST |
| * Allowing weighted average deduction on R&D in computing MAT |
| * Amendment in Section 10B (3) to permit I-T in case realisation of payment within 12 months |
| * Introduction of Presumptive tax in the gems & jewellery sector |
| * Extension of I-T benefits in Sections 10A and 10B |
| * Interest subvention scheme on handicrafts, carpets, handlooms and SMEs |
| * Custom duty on filter paper, multi-wall paper, nylon cloth for tea bags reduced. |
| * Reduction of import duty on coffee plantation mechanism |
| * Exemption for import of live finfish feed (marine sector) |
| FM’S MAJOR ANNOUNCEMENTS FOR DIFFERENT SECTORS |
| SEZs |
| * MAT up from 18% to 18.5% of book profit |
| * Refund mechanism for service tax on services for SEZs to be simplified |
| INFRASTRUCTURE |
| * 21 recommendations by the committee on reduction of transactions cost implemented. Rs 2100 crore to be mitigated in transaction cost |
| * Self-assessment by exporters/importers to be introduced in Customs |
| * Refund of service tax to be simplified |
| LEATHER |
| * 7 mega leather clusters approved |
| * Full exemption from basic excise duty granted to enzyme-based preparation |
| GEMS & JEWELLERY |
| * Additional 1% excise duty on branded gold, silver and jewellery items |
| * Additional Rs 500 crore proposed to be provided under the National Skill Development Fund |
| ENGINEERING & ELECTRONICS |
| * Import duty on hybrid automobiles reduced to 10% |
| * Import duty reduced on farm equipment/ air-conditioning units used for farming |
| * Basic excise duties on goods like LED lights reduced to 5% |
| * Basic Customs duty on solar lanterns reduced from 10% to 5% |
| * The raw-material list for manufacture of specified electronic components exempt from basic customs duty to be expanded |
| HANDICRAFTS |
| * Handicraft cluster to be set up in Jodhpur |
| AGRI & PRIMARY PRODUCTS |
| * Excise duty relief to cold chain equipment. Agricultural machinery and customs duty reduction for micro irrigation equipment |
| * Customs duty on raw pistachios reduced from 30% to 10%; lactose for homeopathic drugs from 25% to 10% |
| * Export duty on de-oiled rice bran cakes |
| * 20% export duty on all categories of iron ore. Iron ore pellets exempted |
| * Basic Customs duty on farm machinery reduced to 2.5% |
The engineering and electronics sectors turned out to be a major beneficiary in the Budget. The government offered the sectors a plethora of incentives to boost export and import. Import duties were lowered on hybrid automobiles, farm equipment, air-conditioning units used for farming (including cold storages). Excise duties on LED lights and solar lanterns were also brought down. In addition to these, concessions available to parts, components and accessories for manufacture of mobile handsets were extended till March 31, 2012.
To encourage handicraft exports, which had witnessed a slump in the wake of the global meltdown, the government proposed setting up a cluster in Jodhpur. This would have some tax benefits. In the textile sector, it slashed Customs duty on raw silk from 30 per cent to 5 per cent.
In agriculture & primary products category, cold chain equipment and agricultural machinery were provided excise duty relief while the basic Customs duty on farm machinery was reduced.