Tax structure for four sectors to be reformed

Ways looked at to cut gap in duty for crude petroleum and its products.

Finance Minister P Chidambaram today said the government would reform the tax structure for petroleum, telecommunications, sugar and textiles in the next Budget.

"Textiles, petroleum, sugar and telecom have the most convoluted and complex tax structure. We have to unravel this to make it more simple and investor- and industry-friendly," Chidambaram said in his address at the 77th annual general meeting of the Federation of Indian Chambers of Commerce and Industry (Ficci) here.

A committee under Chief Economic Adviser Ashok Lahiri is to suggest the roadmap for a shift from ad valorem to specific excise duties for petroleum products.

It is also studying ways to reduce the gap in Customs duty for crude oil and its products. The committee is expected to submit its report by Friday.

Besides, the communications and information technology ministry has suggested changes in the duty structure as part of the broadband policy. There have also been demands for lower tariffs on telecom equipment.

In his address, the minister said India Inc had rediscovered its confidence as was evident from the high level of investment activity in the economy.

Stating that only investment-led growth could be sustained, Chidambaram said the gap between intention and actual investment had narrowed. During April-October 2004, cumulative investment in the economy was estimated at Rs 1,793,979 crore, up 26.9 per cent from Rs 1,413,698 crore in the corresponding period last year.

A bulk of the investment has gone into sectors like chemicals, metals, mining, electricity and services like road transport and communications.

He said foreign direct investment would only come at the margins and the bulk of the investment had to come from domestic investors.

"We have been savers but don't have investors, Chidambaram said, adding that a larger taxpayer base, good corporate governance, a stronger regulatory framework and less corruption would help attract investment."

The minister also said a large part of public funds would be directed to rural areas for providing education and health services besides investments in areas like irrigation.

Chidambaram said the Investment Commission was in place and it proposed to hold sector-specific interactive sessions with industry bodies to remove bottlenecks.

He also said the Cabinet committee on infrastructure, which was headed by the Prime Minister, would undertake reform initiatives to attract higher investments in infrastructure.

The inter-institutional group, announced in the Budget, had not dealt with a large number of investment proposals in sectors like roads, ports and tourism, though there was some interest in the airports business, he added.

The finance minister also said despite the deficient monsoon, farm output growth during the fiscal year was unlikely to be lower than last year as the rabi crop should offset most of the shortfall in the kharif.

"Farm output growth is unlikely to be negative in 2004-05, even if it is not going to be significantly positive," he said. Grain output for the 2004-05 kharif season fell to 100 million tonnes from 112 million tonnes last year.

He said all this had raised hopes that 2005 would be better than 2004.

The minister said only 10 per cent growth by the manufacturing and the services sector could help to improve the plight of the 58 per cent of the population that depended on agriculture for livelihood.

Reiterating the commitment to reforms, Chidambaram said the government would not hesitate in taking measures if it believed that it was on the right path.

The FM's agenda

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• The convoluted tax structure for petroleum, textiles, sugar and telecom is to be reworked in the Budget
• A dole-led economic growth strategy or a subsidy-led growth strategy or a concessions-led growth strategy is not sustainable
• Public funds must go to rural areas for funding education and health besides investments in areas like irrigation