TNC Rajagopalan: SEZ scheme is yet to take off

EXIM MATTERS

Finance Minister P Chidambaram has presented a remarkable Budget 2004. Besides the decisive bias towards agriculture, rural economy, social sectors and higher investment in the economy, he has committed to move towards Asean levels of tariff, uniform tax rate for goods and services, and implementation of the value-added tax (VAT).

He has left the Customs duties undisturbed, except for the base metals like steel, copper, zinc, alloy steel and lead, and items of interest to handicapped and ailing persons. He has withdrawn cou-ntervailing duty exemption on most items.

He has also cut duty on textile machinery, tea and coffee plantation machinery and capital goods required by the non-leather footwear industry.

He has announced that a new special economic zones Bill will be introduced soon. He said special economic zones were growth engines that could boost manufacturing, exports and employment.

The private sector had shown interest in the development of special economic zones and five SEZs had started functioning, he add-ed. Indeed, all these claims are highly suspect. The special economic zone scheme is a non-starter so far.

The commerce ministry is toying with the idea of a "virtual SEZ" scheme to cover units under the export-oriented unit scheme and other domestic units exporting most of their production so that the special economic zones have to compete with other schemes.

It will be wiser to investigate the reasons for the special economic zone scheme's failure and then embark on fresh measures.

The proposals to build an international container transhipment terminal at Vallarpadam in the Kochi port on the "build, operate and transfer" basis, to go ahead with the Sethu Samudram project also need greater public scrutiny on cost-benefits.

The fate of the dubious "Sagar Mala" project is also unclear. Shipping companies will welcome the option to pay either tonnage tax or normal corporate tax.

The decision to grant income tax holiday to agro-processing units for five years besides 25 per cent exemption for the next year is a bold move that will encourage new investments in this sector and help farmers too.

The big decision relates to breaking the Cenvat chain in the textiles sector. The composite mills have also been given the option to take Cenvat and pay duty or take exemptions.

It is an innovative move that liberates wea-vers from the clutches of central excise and at the same time addresses the demands of composite mills for a level-playing field. It will be worth considering whether the exemptions should be extended to man-made fibre and filament yarn too.

The expected educational cess of 2 per cent is to be levied on all duties of excise and Customs as well as income and service tax.

But, the letter from the Central Board of Excise and Customs to field formations asks for 2 per cent on the value of the imported goods also besides 2 per cent on even the education tax.

The board should immediately correct this mistake. Even the restriction that credit of education tax can be used only to pay the education tax needs a review.

Rather surprisingly, the Budget taxes only 15 more obscure services leaving the obvious one like that of lawyers. It is also strange that there is no minimum threshold limit.

The minister has also taken some hard decisions. He has resisted the pressures to revive special additional duty and not given in to the demands of exporters to restore Section 80 HHC exemption.

tncr@sify.com