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Centre should bring down the Central Sales Tax (CST) to 1 per cent: Mfg sector demands
February, 19th 2011

Speedy implementation of Goods and Services Tax (GST), higher investment in infrastructure and carry-forward of stimulus provisions are among the principal expectations of the manufacturing sector from the Union budget 2011-12.

Industry circles also said the finance minister should reduce corporate tax at least to the levels of Southeast Asian countries such as China (25%), Malaysia (25%), Singapore (18%) and Hong Kong (17.5%). In the absence of a GST, the Centre should bring down the Central Sales Tax (CST) to 1 per cent.

Deven Doshi, president of the Association of Indian Forging Industry, said the government should ban export of higher grade iron ore, if not all grades, to bring steel prices to competitive levels vis-a-vis Chinese ex-factory forging quality steel prices, which are lower by about Rs 5,500 per tonne. Indian consumers should get the benefit of Indian iron ore.

Doshi also suggested creation of technology upgradation fund and an increase in the DEPB benefit to exporters of forgings and machined components.

The Auto Components Manufacturing Association (ACMA) has said that it is important to waive the import duty on steel and aluminium alloys as these account for 60 per cent of the raw material costs in the auto component sector. The duty reduction in steel and aluminium alloys would mitigate the inverted duty structure caused by free trade agreements, association president Winnie Mehta said.

"This would also help the Indian auto industry access such raw material at international market prices. China, which is a major threat, accords lower than LME prices on both steel and aluminium for manufacturers of value added products," Mehta said. The ACMA has also demanded rationalisation of the Central Value Added Tax (Cenvat) regime to make it simpler for the component manufacturers.

According to Uday Palsule, managing director, Spear Logistics Pvt. Ltd., the budget should target legislative and infrastructure changes as these are critical and have the ability to transform logistics networks and reduce overall costs for the country up to about 3-4 per cent. Palsule said, conferring industry status to logistics business will provide great focus and leverage for actioning large number of reforms which have been hanging fire.

"Implementing GST will be a path-breaking change, which will transform the way business is carried out in India. It will integrate the logistics networks, enforce larger, smarter warehouses and, most of all, lead to lower inventories. This will invite organised players into contract logistics and make the industry more sophisticated," Palsule said.

"The government's plans of implementing the Direct Tax Code (DTC) will have a positive impact, as it will put more money in the hands of the consumer. The working class, especially the youth, having more disposable income will result in purchase of high-end products. Fast-tracking of implementation of road infrastructure projects will give further boost to the industry," said Diya Ibanez Garware, managing director of Garware Motors Ltd.

Ajay Parmar, head, institutional research, at Emkay Global Financial Services Ltd. felt the pre-crisis excise duty at 14 p.c. was cut to 8 p.c. and later raised to 10 p.c., may be raised to 12 p.c. with strong growth in sectors like small cars. The service rates was spared in the last budget but, looking at the strong growth in services coupled with 16 p.c. GST rates in future, service tax may be increased to 12 p.c., he added.

Considering the steep inflationary pressures building up in fuel items and the rising subsidy bill, the customs duty on crude oil/petrochemicals/fuel products may be reduced or waived, Parmar said.

To encourage further investment in power sector, it is expected that the tax holiday under section 80-IA on power generation is extended, said Anuj Deshmukh, assistant manager, tax & regulatory services at Pricewaterhouse Coopers. To boost exports, the industry expects extension to tax exemption under section 10B to export-oriented undertakings.

According to Ashutosh Prabhudesai, director, accounts & finance, Fujitsu Consulting India, "For the current year's budget, on a macro front, while the robust GDP growth and exports performance are positive news, issues of mounting current account deficit and inflation need to be addressed. A more concrete definition of the timelines on the GST regime would be welcome as also a corporate tax rate reduction as proposed in DTC."

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