The Budget 2010- 11 has given figures of revenue foregone in the last two years which have not been discussed with the attention that is due to them. The figures are given in the accompanying chart. It is also necessary to remove some misconceptions about the figures which we found in the pre-budget articles and news-items in the print media.
The most important misconception is the notion that revenue forgone in the course of export is actually a loss of revenue due to export (i.e. cost of export). The economic analysts variously refer to revenue foregone as “cost to revenue” or “loss of revenue” or “cost of export”. Actually revenue foregone is not a loss of revenue and it is also not a cost of export. The accepted maxim, all over the world is to export the goods and not to export the duty.
Foregoing of duty is necessary to make export possible. If exemptions and remissions of duty were not given, hardly any exports would be possible. All countries resort to zero-rating, which WTO permits. If India does not do it, the Indian goods will simply be priced out. So there will be no production for export, as the goods meant for domestic market have already been produced. There will be no production of goods, which were being produced for export. There would, therefore, be no collection of duty also. So the duty foregone is not really the cost of export.
An example will clarify the matter. Let us say, the Bajaj Company in India is manufacturing 120 motor cycles. They sell 100 in the Indian market and export 20. If there is no zero-rating for these 20 motor cycles, they will be priced out in the world market and there will be no export of these motor cycles. So Bajaj will only manufacture 100 and not the extra 20. For these 20 which are not manufactured obviously there will be no customs duty paid for any parts or paints that would not be imported. Also there will be no Central Excise duty paid as there will be no manufacture. So the question of duty foregone will not arise.
There would be no collection of duty if these 20 are not exported. If these 20 are exported and zero-rated, there would be no duty collected also. Both situations are same. So one cannot say that due to export the duty foregone is the loss of duty. The figure of revenue foregone shown in the Table 11 at page 87 of the Receipt Budget of 2010-11, reproduced below, is relevant only statistically. The statistical relevance of the figures of duty foregone is only to see how much duty has been refunded or has not been charged. Such figures are necessary for formulating Budget and for various analysis in the Ministry of Finance and by independent analysts.
| REVENUE FOREGONE ON ACCOUNT OF EXPORT PROMOTION CONCESSIONS (IN Rs CRORES) | |||
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Sl. No. | |||
(Provisional)
(Estimated)
Authorisation Scheme
Udyog Yojana
While the above is for customs duty, for central excise the figures are 128293 cr for 2008-9 and 170765 cr for 2009-10. The figures will show that it is wrong to say that there is huge concession of indirect taxes in SEZ. Revenue foregone is same in SEZ as well in all other schemes other than SEZ.
For income tax and corporate tax also there are such revenues forgone which are for export and development purposes. Whether we should continue so many of them or some exemption is without merit or is being misused is a different question but here I want to clarify that these revenue forgone are not revenue loss.
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