In the Interim Budget, the finance minister has taken tax measures that are specifically in the nature of correcting some of the aspects in the mini-Budget of January 8, 2004, which had lent themselves to criticism from the affected industries.
The basic structure of tax has not been altered. Jaswant Singh has 'ironed out the creases,' to use a phrase made famous by Lord Denning. Some measures, of course, are in the nature of marginal improvements.
In the January mini-Budget, the Indian manufacturing industry was given a boost by reducing the peak customs duty as well as the duty on capital goods to 10 per cent.
The domestic capital goods industry found itself in a difficult situation because imported capital goods were apprehended to be cheaper than Indian capital goods.
So the capital goods industry wanted two things to create a situation where it would be competitive with the foreign exporters of capital goods.
First, it wanted the zero, five and 10 per cent exemptions to be removed, so that the general rate becomes 15 per cent. This has not been agreed to in this interim Budget.
Second, it wanted that, if the custom duty continued to be 10 per cent or less, then it should get deemed export benefit.
In simple terms, the deemed export benefit works like this: if there is a project that imports goods at zero per cent basic customs duty and zero per cent countervailing duty, then an Indian manufacturer of the same goods should be allowed to supply it to the project, in which case the project would not have to import it.
The situation amounts to the project importing the good. So the Indian manufacturer should not have to pay not only the central excise duty when the goods are supplied to the project, but at the same time the Indian manufacturer should get credit for the input duty paid by it to manufacture those goods.
That is to say, the Indian goods supplied to the project (which would have otherwise imported these goods) would be zero-rated in the same manner as they would have been zero-rated had they been physically exported out of the country. This measure would put them at par with physical exports.
However, the present proposal in the interim Budget is that wherever there is exemption from countervailing duty on imported goods, deemed export benefit would be given.
This is an insufficient benefit. Normally, wherever there is excise duty, there is a corresponding countervailing duty.
It is only in very rare cases that there is specific exemption for countervailing duty only, while there is an excise duty.
So if the proposal is limited to these cases, there will not be a substantial number of cases where the benefit now proposed will accrue to the capital goods industry.
What the capital goods industry wants, and what the Budget should have done, is to introduce the deemed export benefit not only where countervailing duty is exempted but also where the rate of basic customs duty rate is nil, five or 10 per cent.
This should cover all important projects such as refinery, fertilisers, coal-mining, LNG, power and so on, where the deemed export benefit does not exist at present.
Only then would the proper purpose be served. Hopefully, the final benefit given to the capital goods industry in consultation with the commerce ministry will actually 'provide a level playing field to domestic manufacturers,' as announced in the Budget.
Another corrective action is the proposed legislative measure to give retrospective exemption from excise duty on residual oils for power plants.
While it is a commendable proposal, an exemption with a specific provision of 'retrospectivity' incorporated in it would have been enough.
Saying that a suitable legislative measure would be taken is tantamount to an expression of desire for the future. This can only be done in the regular Budget that is likely to be announced in June 2004 and the next government may or may not do it.
Electronic filing of excise returns will be introduced from June 30, 2004. This will introduce a major change in the whole concept of excise administration.
It will be as important a step as the shift from physical checks to documentary checks, which were introduced nearly four decades ago.
This is now the beginning of a launch into electronic checking in place of physical checking of documents. With the passage of time, even electronic checking of invoices should be possible, which will make the verification of (Cenvat) input credit easier.
Liberalisation of baggage rules and the reduction of duty on baggage from 50 to 40 per cent are welcome measures. Some user-friendly tax administration measures have been proposed that are progressive in nature and were, in fact, overdue.
The same is also true in respect of service tax. Now, only a simple verification will be enough for the grant of registration.
There will be a single registration and single return for assessees providing more than one taxable service. There is also going to be a provision for electronic filing of returns and also electronic security to all the 58 taxable services.
Direct taxes have not been subjected to any substantial modification. Some sunset clauses have been extended.
Fiscal benefits available to new projects in the power sector have been extended up to 2012 from the earlier 2006.
The regime of listed equities acquired on or after March 1, 2003, being exempt from long-term capital gains tax is being extended for a further three years.
To make Indian shipping competitive with international shipping lines, the measure proposed is to impose a tonnage tax scheme with notional income at a fixed rate, on the basis of net registered tonnage. Capital gains on acquisition of agricultural land is being exempted from tax.
If outsourced services are ancillary and auxiliary in nature and adequate remuneration is paid to the Indian call centre, then there shall be no tax on a foreign corporation that has outsourced its activity to India.
However, the concept of "adequate" is vague and needs a definition, even if artificial, to be incorporated in the statute.
The standard deduction for the salaried class, the family pension for war widows as well as the present exemption limit will also be considered for revision. Overall, the interim Budget has fine-tuned January's mini-Budget.
The author is a former member, Central Board of Excise and Customs.
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