Importers will be happy to know that the Reserve Bank of
India is announcing today the withdrawal of the interest rate
surcharge of 25% on import finance imposed in February, 1996.
I now come to my proposals regarding central excise. A
large number of countries in the world today have a value added
tax system which has been recognised to be the most efficient
form of commodity taxation. I am glad to note that some State
governments are moving towards the value added tax system. The
last few years of reforms have taken us closer to having a
Central VAT, but there are still certain legal obstacles.
Our central excise structure still has 11 ad-valorem
rates. The rates range from 0 to 50 per cent. Ideally there
should be only four rates of excise duties -- zero, a lower rate
of excise duty on goods of mass consumption, a single normal rate
on all other goods and a higher rate on luxury items. It is
absolutely necessary for us to move towards this rate structure
so that we put an end to wasteful litigation and have a
transparent and simple tax structure. It was not possible in the
time available to me in preparing this Budget to achieve this
goal in the current year. However, I propose to take the first
step this year and I am confident that we will achieve a four-
rate excise duty structure in another year or two.
I propose to integrate the tax on the textile sector
with the mainstream of central excise duties by introducing the
Modvat principle in this sector. Hon'ble Members are aware
that at present excise duties are levied at the fibre and yarn
stage and there is only an additional excise duty, in lieu of
sales tax, on fabrics. This is one of the most inefficient ways
of taxation as it results in very high duties on inputs, which
encourages evasion; it does not capture value addition; and it
denies the industry an opportunity of claiming Modvat input
credit on capital goods, chemicals and yarn. While modernisation
of other industries is taking place speedily, our textile
industry has not been able to participate fully in this process
because of this lopsided tax structure. I, therefore, make the
following proposals.
I propose to reduce the excise duty on yarn in the case
of polyester filament yarn from the current level of 50% to 40%
and unify the rates on other yarn at 20%, except nylon filament
yarn and cotton yarn for which the present rates of 30% and 5%
respectively will be retained. In order to provide Modvat for
the textile sector, I propose to impose a basic excise duty of
5% on cotton fabrics and 10% on other fabrics which will be
collected at the processed fabric stage. The processors would be
in a position to Modvat the duty paid on yarn imputed on the
basis that yarn accounts for 50% of the value of the finished
fabric. I have adopted a simple procedure of imputed value to
avoid the imposition of a basic duty on grey fabrics which are
manufactured by thousands of powerlooms. Such powerlooms will,
therefore, continue to be outside the excise net. Composite
mills and textile processors will be able to avail themselves of
Modvat facilities hitherto not extended to them. This
restructuring of excise duty, together with the substantial
reduction in customs duties on selected machinery and on inputs
for the textile sector, should provide a major boost to the
textile industry. I believe that this will also simplify the
calculation of drawback rates for garment exporters.
In my proposals on customs duties, I have proposed a
reduction in customs duty on crude oil from 35% to 25%. This is
part of a restructuring and rationalisation of the duty structure
aimed at encouraging efficient refineries and enabling me to
shift the duties from the input stage to the product stage. I
propose to make up the loss on customs duty by adjusting the
excise duty upward from 10% to 15% on all petroleum products
except LPG and kerosene. The proposed changes in customs and
excise duties taken together are revenue neutral and will have
no impact on the administered prices of petroleum products.
Honourable Members are aware that almost all articles of
mass consumption are already exempt from excise duty and a large
number of other widely consumed articles carry a rate of only
10%. I propose to exempt some more articles from excise duty.
They are:
Vanaspati and margarine;
Writing and printing paper supplied to all State Text
Book Corporations;
