TNC Rajagopalan: SAD's likely revival worries trade

EXIM MATTERS

Exporters and importers are anxious whether the special additional duty (SAD) will be revived in the Union Budget for 2004-05.

The next worry is the extent to which they will be hit by the wider coverage of the service tax. Third question is whether the income tax exemption under Section 80HHC will be restored.

Overshadowing all the worries is the problem of congestion at Nhava Sheva port, near Mumbai.

It was Yashwant Sinha who introduced SAD in 1998 in response to representations of domestic producers that while they pay sales tax on their produce, the imported goods do not suffer any tax to countervail the sales tax.

Jaswant Singh abolished SAD in January 2004. What he also did was to reduce basic Customs duties by 5 per cent. Total reduction in import duties on most goods was to the extent of 11.8 per cent.

Many domestic producers feel the fall in duties is a bit too steep and that the logic for SAD still holds good. The news that most states will adopt the value-added tax (VAT) next year and that the present lower sales tax rates may give way to the VAT at around 10-12 per cent has also added to the domestic producers' urgency.

If they have to pay the VAT at 12 per cent and imported goods do not suffer a similar tax, they will be handicapped and so "bring back SAD," they say.

Whether SAD will come back with basic Customs duties unchanged at the present 20 per cent or at the reduced rate of 16 per cent is a matter of conjecture.

But exporters are looking at how much more they will get through upward revision of DEPB rates if SAD is revived. The service tax is something that exporters and importers pay on most services they get.

Their worry is that all types of agents, including indenting agents and even agents who get them licences or excise rebates, will now ask for the service tax. Even litigation might get expensive if lawyers have to pay the service tax.

Many exporters and importers are wondering how they can generate enough "cash" to pay for services that will be rendered without bill. Although representations have been made, not many exporters are hopeful that Section 80 HHC will be restored.

The government has got rid of the exemption on export profits with great difficulty. To bring it back is easy but to get rid of it again will be difficult. Moreover, fresh investments may not be much influenced by Section 80 HHC.

The major worry for the trade is that congestion is getting worse at Nhava Sheva port and nobody seems to have an idea how to overcome the problem.

Every agency, whether port authorities or transporters or railways or state authorities, is blaming the other, while containers wait for at least a week or more at the buffer yards. Now, even container shortages have surfaced.

Yet, many exporters are not complaining too loudly because the world economy is doing well, with recovery in Japan getting entrenched and order books full at better prices.

Second, the dollar-rupee exchange rate at about Rs 45.70 is something they did not expect a few months back. Many of them thank the Leftists whose outbursts have contributed to better demand for foreign currency.

tncr@sify.com