| Budget 2007's fineprint reveals a lot more things than the finance minister let on in his speech, and most of them show the Budget in a fairly poor light. Those who mostly write about the Budget are economists, and they do not usually go through the fineprint but confine themselves to the Budget allocations, investments in agriculture, industry, social sector and so on. |
| The first point is about the reduction in the customs peak rate. The finance minister says that he proposes to reduce the peak rate for non-agricultural products from 12.5 per cent to 10 per cent. However, when we see all the notifications, we find that in quite a large number of cases, the rates for non-agricultural items continue to be 12.5 per cent and even much higher; 12.5 per cent continues in the chapters for mineral products, organic chemicals, pharmaceuticals, soaps, surface-active agents and miscellaneous chemicals. The other high rates are 25 per cent for some items of rubber, 30 per cent for some albuminoidal substances, edible preparations, miscellaneous chemicals and essential oils, 55 per cent for bituminous coal, 70 per cent for some rubber and 100 per cent for motorcars. In all the chapters of textiles, that is, from 50 to 63, which is a large chunk of the tariff, a large portion of the rates are 10 per cent plus specific duty on the basis of weight or length, which can work out to even more than 25 per cent. All these items are quite substantial in number and cannot be ignored completely. The finance minister could have rightly said that the peak rate for non-agricultural items has been made 10 per cent "in most of the chapters for most of the items". That would have been a transparent statement of facts. By not mentioning that there are still many higher rates than 10 per cent, a patently wrong impression has been given in the Budget speech that 10 per cent is the peak rate for non-agricultural goods. |
| Taking count of exemptions, we find that they have increased and not decreased. In Customs the general exemption (apart from many others) containing individual exemptions for all the chapters now contains 565 serial numbers, as compared to the earlier 540. The number of Lists remains at 50 as in the last year. The number of conditions is now 102 in place of 99 earlier. On the Central Excise side the major exemptions for all the tariff items (apart from many other exemptions on geographical basis) contain 283 serial numbers in place of 315 in last year's Budget. This shows that the so-called "comprehensive review of exemptions having posted them on the website and having invited comments" has merely resulted in removing just 32 exemptions out of 315. |
| Regarding exemptions on the Customs side there was a tremendous scope for rationalisation if only a simple principle was followed that no exemptions would be given to the extent of 2.5 per cent. But in a large number of chemicals, pharmaceuticals and machinery items, which form a large percentage of imports in the country, the exempted duty is only 2.5 per cent. This difference has been created sometimes in the tariff itself and sometimes by exemptions. This has complicated the chemicals and machinery chapters to such an extent that an easy classification of goods is a chimera. The exemptions for Metro railway, petroleum operations, exploration, setting up of crude petroleum refinery, cellular mobile telephone service and so on, still continue. These are all commercial organisations and there is no reason why such hidden subsidy in the shape of exemptions should continue. |
| Regarding valuation of imported goods, an amendment has been made in Section 14 of the Customs Act. And it has been said in the Memorandum given with the Budget papers that the amendment is being made to remove a 'contradiction' in the existing law. There was no contradiction at all. It is quite legal to have the basic enabling provisions in the Act and have a separate rule to give guidelines for proceeding in individual cases. The residual rule in any case brought in the jurisdiction of the basic Act itself. By calling the situation a contradiction when there was none, the Budget amendment has ensured that the government loses all the pending court cases. At least it could have been said in the Memorandum that it was a measure of simplification. The use of the word "contradiction" is most unfortunate. |
| Transaction value has been introduced for the purpose of export also for the first time. This will enable the ministry to frame rules for export and thereby bring in the concept of comparable value of similar goods for the purpose of valuation of export goods. This will give a handle to Customs officers to scrutinise export valuation cases more thoroughly and it is very likely that many export consignments will miss the target time for exports. This has been a detrimental step, which has not been mentioned in the Budget speech. Had it been mentioned, a more informed criticism could have been possible. |
| Table 8 of the Receipts Budget shows the figures of Revenue Foregone on Account of Export Promotion Concessions. It has been rightly pointed out that these figures should be deducted from Table 7 for estimates of major tax expenditure under the customs duty regime. But without deducting them at Table 9, an inflated percentage of a 'Revenue Foregone as a percent of Gross Tax Collection in 2006-2007' as 26.44 has been worked out for customs duty. If the Table 7 figures were deducted, the percentage would have been somewhere near 14. And that gives the correct picture. This incorrect percentage at Table 9 has already misled the analysts of the Budget in different media reports . |
| Advance Ruling is still a distant unrealised goal for ordinary Indian citizens. The definition of 'applicant for advance ruling' has been amended to clarify that a joint venture in India 'means a venture in which at least one of the participants, partners or equity holders shall be a non-resident having a substantial interest in the joint venture and exercising joint control over it. The expression 'substantial interest' is very vague and there is likely to be an elaborate debate before the Advance Ruling Authority. But the worst of all, it is the aam aadmi of India who does not get an advance ruling. He suffers the agony of running from pillar to post. |
| The writer is Member (Rtd), Central Board of Excise & Customs |
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