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The ministry of chemicals is considering a proposal to keep the indigenous chemical industry out of the ambit of the proposed chemical cess.
According to sources close to the development, the cess will be imposed once the new government gets ready to present the budget.
As per the proposal 1% chemical cess will be imposed only on chemicals imported from foreign countries which will not affect the domestic products and manufacturers.
The Union ministry of chemicals in its national chemical policy had proposed a chemical upgradation and innovation cess at the rate of 0.5% ad valorem on chemical industries. The aim is to collect funds for establishing a Technology Upgradation and Innovation Fund.
This was in line with the cess imposed by the ministry of new and renewable energy to set up a clean energy fund or as with the case of the telecom fund of the department of telecommunications; in fact, DoT imposes a five% cess on an operator’s gross revenue.
However, the chemical industry has been opposing the idea till date, stating its profitability is already badly hit from both lower exports and a glut at home.
Therefore it has been in principle decided that domestic market which is highly saturated with basic chemicals, are not equipped to upgrade their factories into manufacturing of specialised chemicals, thus will be exempted from the proposed cess for the time being.
Since the imports are quite price competitive, imposition of the levy will not hurt much while the levy could act as safeguard against the imports for the domestic manufacturers.
Officials explained that the cess will help create the technological upgradation fund which the industry could avail to increase research and development (R&D) spending, from the existing one to two% of their total expenditure to five to 6%.
The R&D spending could focus on aligning technology, demand, standards and regulations after examining emerging technologies and trends, they said. Another focus area could be creation of intellectual property rights (IPR) through synergy between academic centres, manufacturers, R&D centres, etc.
“The idea is to strengthen links in the complete value chain from research to IPR generation, product design, development and commercialisation, so as to become internationally competitive,” they said.
The draft national policy for the industry has also suggested bringing molasses and alcohols under the proposed Goods and Services Tax, to eliminate the differential duty between states and its effect on production of ‘green’ chemicals, the latter produced by using bio-chemical feedstock such as agro waste.
Similarly, electricity duty and power cess levied by states on captive power generated and supplied should attract value added tax, since input credit can be availed by users. Currently, it is a burden on chemical manufacturers as the duties and cess on power can be as much as 10-40%.
