Sectoral tax breaks may be trimmed

RUN UP TO BUDGET 2006

Specific exemptions to textiles, food processing and high-technology industries may be scrapped.

The forthcoming Budget may do away with some of the specific Customs and excise exemptions extended to sectors like the textiles, food processing and high-technology industries.

Senior government officials said some of the exemptions, particularly in Customs, could be removed as duties for most sectors had been reduced to around 5-10 per cent.

"The exemptions were provided at a time when the duties were higher and for items where there was no domestic production. However, with India entering into bilateral pacts with countries like Singapore, Thailand, and with the more recent SAFTA, many of the concessions are no longer required," an official said.

The finance ministry is examining the recommendations of a report prepared by TR Rustagi, a former a joint secretary in the Central Board of Excise and Customs. The report had reviewed all the existing indirect tax exemptions.

Several items in sectors like life-saving drugs, medical equipment, textile machinery, information technology, including computers and peripherals, enjoy complete exemption from payment of Customs duties. In addition to this, infrastructure such as ports, roads and airports also enjoy Customs exemption.

Similarly, several food processing items such as biscuits, fruit juices, confectionery items and ice-creams enjoy excise exemption.

Small-scale sector, sports goods and IT products also enjoy this exemption.

Tax experts contend there is a clear case for doing away with some of the exemptions.

"A modern and progressive indirect tax regime should comprise few taxes and a moderate tax rate with minimalist exemptions. I believe this intent will be further realised by the government in this year's Budget," S Madhavan, executive director of PricewaterhouseCoopers, said.