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Plan panel proposes duty changes for petrochem industry

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Anindita Dey Mumbai

The Planning Commission has proposed a slew of changes in the prevalent duty structure for the petrochemical industry for the new Plan period (2012-17).

To begin with, it has urged the central government to establish single national level value-added tax (VAT)/ goods and services tax (GST) on plastic and articles of states at a uniform four per cent. This could include prime petrochemical feedstock, naphtha and natural gas.

Besides, the Commission, in a report on the industry for the new plan period, has proposed duty in an increasing trend for the petrochemical sector, starting with feedstock (naphtha and liquefied natural gas) at zero per cent, intermediates (ethylene, propylene and benzene) at two per cent, primary petrochemicals (polymers and bulk chemicals) at five per cent and various semi specialty or value-added products at 10 per cent. For capital goods used by the industry, duty should be eliminated, down from 10 per cent now.

 

Currently, along with feedstock, intermediates and primary petrochemicals are charged at five per cent, while various semi-specialty or value-added products are charged 7.5 per cent.

India’s import duty structure provides zero tariff protection for key petrochemicals, naphtha, natural gas and propane besides products like ethylene, propylene, benzene and butadiene. With a preferential duty structure with countries that have signed free trade agreements with India, the tariff protection is even negative in India. On the other hand, other countries maintain a tariff differential of at least 5.5 per cent.

In terms of domestic taxes, polymers are charged VAT of 4-8.8 per cent across states, central sales tax (CST) of two per cent, excise of 10 per cent and customs duty of five per cent. VAT is the current state-level tax imposed on sale of any article, whereas GST includes all possible taxes — excise, service tax, etc — in the proposed new GST regime. The panel is of the view that natural gas should be included under the “declared goods” category under the CST and be taxed uniformly at four per cent across states. Sales tax on natural gas currently varies across states. According to the panel, India has very low import duty of five per cent on polymers and other petrochemicals, compared with most Southeast Asian countries, where customs duty varies between five to 30 per cent.

“It is ironic that India is a net exporter of naphtha, the basic feedstock of the industry and at the same time naphtha is heavily imported for the downstream petrochemicals industry,” the report said.

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First Published: Jun 06 2012 | 12:42 AM IST

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