After the tough talk, the olive branch

Chidambaram eases duty on cement, export of iron ore.

Two months after cracking the whip on cement producers and iron ore exporters to cool rising prices, Finance Minister P Chidambaram today relaxed partly the excise duty on cement and the export tax on iron ore.

Replying to the debate on the Finance Bill in the Lok Sabha, Chidambaram said the specific excise duty of Rs 600 per tonne on cement sold at more than Rs 190 a bag (of 50 kg) would be replaced with an ad valorem duty of 12 per cent. This, he said, will reduce the incidence of excise by Rs 7 a bag.

Cement sold at less than Rs 190 a bag will continue to attract the concessional specific duty of Rs 350 per tonne. "As the dual excise duty failed to yield any result, there is no point in continuing with it," he said.

Cement firms Business Standard spoke to said they would pass on the tax benefits to customers. Some experts said this could result in cement prices coming down by Rs 2-4 per bag in some regions of the country.

After cement producers refused to roll back their price hike (they agreed to hold their prices for a year, though), the government had allowed duty-free import of cement and also removed the countervailing duty on imports.

Chidambaram also replaced the flat tax of Rs 300 per tonne on export of iron ore with one linked to the grade of the mineral after some Chinese steel companies boycotted purchases of the commodity from India.

Shipments of iron ore fines with ferrous content of less than 62 per cent will be taxed at Rs 50 a tonne, while export of iron ore fines with a higher ferrous content and iron ore lumps would continue to attract tax of Rs 300 a tonne.

Chidambaram had introduced the tax in this year's Budget after it was found that domestic iron ore prices were rising sharply on account of higher exports.

This, in turn, had caused a steep rise in steel prices. After the tax, export of iron ore had fallen by a third to 7 million tonnes in March.

However, the finance minister clarified that the reduced export tax would apply to just 10 per cent of the country's iron ore exports. Industry sources said the benefit would be maximum for mining companies in Goa, where the iron fines were mostly in the 58-59 per cent grade.

The announcements came after trading hours in the stock markets. Experts say cement and mining stocks could see considerable buyer interest tomorrow.

Providing marginal relief to companies issuing employee stock options, the finance minister also said that the fringe benefit tax on ESOPs would be calculated on their value at the time of issue of the option and not at the time of exercise of the option, as proposed in the Budget.

The Finance Bill for the year 2007-08 was cleared through voice vote in the Lok Sabha today after extensive discussion and amendments. The Bill now goes to the Rajya Sabha for consideration and is expected to be cleared on Saturday.

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PC'S BOUNTY

12% duty imposed on higher-priced cement; replaces specific duty

Export duty on iron-ore fines cut

FBT on ESOPs on issue value

Ready-to-eat packaged food fully exempt from excise duty

Biscuits selling up to Rs 100/kg to be fully exempt from excise duty

Refrigerated motor vehicles exempted from customs duty. Excise/CVD reduced from 16% to 8%

Cut and polished diamonds fully exempt from customs duty

Customs duty on nickel reduced from 5% to 2%

Aircraft for training and charter operations to be exempt from customs duty

Customs duty on N-paraffin reduced from 10% to 5%