Countervailing duty may cover more items

RUN UP TO BUDGET 2006

NMCC draft suggets an alternative of levying VAT on all imports at a nominal rate of 12.5%.

The coming budget can expand the coverage of countervailing duty (CVD) on more items. A strong case for this has been made by the National Manufacturing Competitiveness Council (NMCC) in its latest draft report.

"The 2005-06 Budget has a provision for an additional CVD of 4 per cent, but that is at present restricted to information technology products and needs to be extended to other items," the NMCC said.

The NMCC pointed out that in cases where basic Customs duty was zero, imported products should draw duties equivalent to domestic indirect taxes paid by domestic manufacturers.

Budget 2005-06 contained a provision empowering the Centre to expand the scope of CVD if required. The report also states that this particular reform gets linked with the domestic indirect tax reforms.

The recommendation also provides an alternative of levying value-added tax on all imports at a normal rate of 12.5 per cent.

The draft has proposed an all-India combined goods and service tax (GST) with service sector taxation integrated into the VAT framework. The report admits that this will be ideal but difficult to implement quickly.

The report recommends that "it will be better to work towards a national VAT that will run in parallel with the central and state levels, which in turn will achieve the same objectives as the GST".

The NMCC has also said that the inverted duty structure caused by free trade agreements (FTAs) or caused otherwise needs to be rectified.

"There is a plethora of FTAs entered into, not in the World Trade Organisation ambit, which invariably involves manufactured products providing for zero duties eventually. Some of them have given rise to inverted duty structures which need to be addressed," the NMCC has said.