Broom, Broom all the way!

The most famous broom belongs to Harry Potter. The next most famous seems to be one of the Ministry of Finance. It goes on exempting, withdrawing and re-exempting the duty on broom.  The latest September initiative is to wipe out the exempted duty of 8 per cent by making it nil.*

That seems to be a great benefit to households but in effect, it is an exercise in futility.

There is a veritable history of excise duty on brooms. Brooms fall under Chapter Heading 9603.  9603 10 00 is for brooms and brushes, consisting of twigs or other vegetable materials, bound together, with or without handles.  The general rate of duty for 9603 is 10 per cent in the tariff and this has been reduced already to 8 per cent by an exemption No.6/2007-CE dated 1.3.2007. 

Now this 8 per cent has been reduced to nil only for 9603 10 00.  This means the other type of brooms and brushes such as tooth brush, painting brush will continue to pay 8 per cent. First and foremost, there was no point in reducing the rate of duty from 10 per cent to 8 per cent.  It is such a marginal reduction that it does not have any impact at all. Such exemption of marginal nature only creates a larger number of exemptions.

And now to reduce the duty on ordinary brooms to nil has far less sense. The real point is that this sort of brooms consisting of twigs is invariably made in small scale. This small-scale exemption allows duty-free manufacture up to the value of Rs 2 crore (Rs 20 million) per year, which comes to nearly Rs 17 lakh per month. This is a big enough amount.

Ordinary broom sells for Rs 20 to Rs 30 per piece in the retail market. This means that the wholesale value would be nearly Rs 10 per piece at the factory gate. This works out to nearly 170,000 brooms per month.

This comes to nearly 7,000 brooms per day even allowing for 300 working days. It is well neigh impossible to image that a factory will produce more than 7,000 brooms per day. 

The ground reality is that the broom manufacturers are all in a small scale and in fact tiny sector. So the small scale exemption will obviously cover all the factories manufacturing brooms and brushes made of twigs, etc. So, the exemption on brooms is simply superfluous.  And if a factory produces more than Rs 2 crore of broom per year, let it pay duty.

A large number of exemptions for products which are usually manufactured in small scale sector can be withdrawn. Bindis, Kumkum, Vanity bags, which enjoyed exemption at some point of time, need not have been exempted like the broom as they are almost invariably covered by small scale exemption.

If we go through the list of exemptions, we can get plenty of such examples even at a first glance. Pencil sharpener and blade thereof, nipples for feeding bottles, tooth powder, drawing ink, candles, henna power, scented supari (the price of which does not exceed 50p) are some of the examples.

Revenue should remove all these exemptions at one go. If at all there are factories which produce more than Rs 2 crore worth of goods in a year, let them pay duty. Why exempt them?

The conclusion is that in the next Budget, the Finance Ministry should give up all these notions about giving tit-bits of exemptions which only crowd the columns of Tariff. The idea should be to converge towards 16 per cent. It may be 14 per cent if the Ministry wants to introduce a rate this year for eventual Central GST.

*Notification no 35/2007CE dt 20.9.2007.