The Finance Minister, Mr P. Chidambaram

The Finance Minister, Mr P. Chidambaram, on Thursday addressed some of the concerns of industry segments which had complained against his Budget proposals by announcing a number of indirect-tax reliefs for a range of industries from cement, steel, iron ore, refrigerated motor vehicles to biscuits and ready-to-eat packaged foods.

In his reply in the Lok Sabha to the debate on the Finance Bill 2007, Mr Chidambaram also announced a few direct tax changes in areas like fringe benefit tax on ESOPs, but refrained from tinkering with the threshold exemption limits or tax brackets for personal income-tax as proposed in the Bill. He has also included investments in Nabard Bonds within the overall limit of Rs 1 lakh annual savings eligible for tax deduction.

The Lok Sabha later passed the Finance Bill by voice vote after incorporating the 37 amendments moved today.

In the case of the cement industry, the Government has withdrawn the dual specific rate of excise duties that was introduced in the Budget. "The dual specific rates of duty have not brought desired results and hence there is no point in continuing with the same," he said.

Ad valorem duty

While specifying that the concessional specific duty of Rs 350 per tonne for cement sold in retail at not more than Rs 190 per bag will continue, he said an ad valorem duty of 12 per cent of the retail selling price would be levied on cement sold at more than Rs 190 per 50 kg bag.

Stating that there would be an effective reduction of up to Rs 7 per bag on the excise duty liability (under ad valorem duty), Mr Chidambaram hoped that cement industry would respond positively to the changes announced and reduce the price of cement.

On the issue of iron ore export duty, the Finance Minister has reduced the duty on iron ore fines of Fe content 62 per cent and below to Rs 50 per tonne from the earlier proposal of Rs 300 per tonne. On iron ore fines with Fe content above 62 per cent and on iron ore lumps, the export duty will remain at Rs 300 per tonne.

He also announced reduction in customs duty on nickel from 5 to 2 per cent, cut and polished diamonds from 5 to 3 per cent, refrigerated motor vehicles from 10 to 0, N-paraffin from 10 to 7.5 per cent and on aircraft imports.

Soyabari (food supplement) and ready to eat packaged foods would now be excise exempt as against eight per cent duty earlier.

While excise duty on refrigerated motor vehicles have been cut from 16 to 8 per cent, the excise duty exemption on biscuits would now apply to those whose retail sale price does not exceed Rs 100 per kg as against the earlier proposed price level of up to Rs 50 per kg. Besides reducing the excise duty on zip fasteners from 16 to 8 per cent, the Finance Minister also said that he had accepted the suggestion of the Bhabha Atomic Research Centre and extended excise duty exemption to water purification equipment based on polysuplhone membranes.

On the excise duty front, the Finance Minister admitted that the growth in excise revenues had not kept pace with the growth in manufacturing sector. "We have set a target growth rate of 10.09 per cent for 2007-08 over 2006-07 and we shall make every effort to achieve the target," he said.

On the direct tax side, Mr Chidambaram said that fringe benefit tax on Employee Stock Option Plans (ESOPs) would stay. However, he announced some changes according to which the fair market value of the ESOPs for the purpose of taxation would be calculated based on the date when employees become eligible for ESOPs and not the date of allotment or transfer of the shares. But, the FBT would be collected only on allotment or transfer of the shares and the period of holding of the ESOP would also be reckoned from the date of such allotment or transfer.

CBDT guidelines

The Central Board of Direct Taxes (CBDT) would now come up with guidelines on how to compute fair market value. Meanwhile, the amendments made today include the provision that would make recovery of fringe benefit tax by the employer from the employee a legally valid transaction.

The Finance Minister also indicated that he would review the banking cash transaction tax (BCTT) next year even as he justified its continuation this fiscal. He also expressed confidence that inflation would moderate in the coming days and the fiscal, monetary and supply side measures of the Reserve Bank of India and the Government would bear fruit. Mr Chidambaram also promised that the Government would continue to do good work on tax arrear recovery front.

Highlights