Finance Minister’s Reply to the Discussion on the Finance Bill 2011-12 in Lok Sabha

Madam Speaker,

It is unfortunate that the colleagues from across the House chose not participate in the discussion on the Finance Bill 2011-12. In a democratic polity the Government stands to benefit from inputs from colleagues from both sides of the House. In turn, they have an opportunity to lend their voice and expertise to influence public policy in the larger national interest. When this does not happen, it does not bode well for the institution or the society at large.

2. I would like to thank all the speakers who chose to spoke on the Finance Bill 2011-12. A number of valuable suggestions have been made. I have already responded to some of these suggestions while replying to the General Discussion on the Budget and I also addressed a few concerns while introducing the Bill earlier today. I propose to address some more suggestions in the course of my reply.

Madam Speaker,

3. In my proposals for the Direct Taxes, for the year 2011-12, I had proposed to provide lower tax rate of 15 per cent on dividends received by Indian companies from foreign subsidiary companies in which the Indian company holds more than 50 per cent share capital. Several representations have been made requesting further relaxation in the ownership pattern of the foreign subsidiaries. I, therefore, propose to lower the holding requirement in the foreign company from 50 per cent to 26 per cent. This will enable overseas joint ventures with Indian partnership, to also avail this benefit.

4. In order to provide for deduction to employer’s contribution to a pension scheme on account of an employee, I propose a consequential amendment in section 40 A (9) so that the deduction to the employer for his contribution is not barred under this section.

5. As no deduction for export profits is allowed after April 1, 2005, I propose that such export profits should also not be allowed as a deduction while computing book profit for the purpose of levy of Minimum Alternate Tax (MAT) after the said date.

6. Suitable amendments have been proposed to the Finance Bill to give effect to these changes.

Madam Speaker

7. In respect of my Indirect Tax proposals, among the Government amendments to the Finance Bill, I propose to insert a new provision in the Customs Tariff Act to enable the Central Government to extend anti-dumping duty imposed on an article in cases of circumvention. The other amendments are technical in nature and do not involve any substantive change.

8. The House would recall that one of the considerations that guided the formulation of my proposals on indirect taxes was to prepare the ground for the transition to GST, beginning with a reduction in the number of exemptions. It was in this background that a mandatory levy of 10 per cent was proposed on branded ready-made garments and made-ups of textiles. I have received a large number of representations seeking a review of this proposal on the ground that this industry is still quite fragmented with a pre-dominance of unorganised units. While moving the Finance Bill for consideration earlier today, I have already announced an increase in the level of abatement on these products so that the overall burden of tax comes down and small manufacturers benefit. I would take this opportunity to re-emphasize that this would enable an SSI unit to continue to enjoy the exemption even if it had a turnover based on Retail Sale Price (RSP) of Rs.8.9 crore in 2010-11. I shall now take up some additional measures to provide relief to this sector.

9. It has been pointed out by the garment industry that often brand owners who outsource production to small units do not disclose the RSP to them. Since the duty is payable on a value linked to the RSP, this poses a problem for small manufacturers. A deeming provision is being made to enable such manufacturers to pay duty on the wholesale price at which they make a sale to the brand owner. As and when the brand-owner affixes the RSP on the garment or made-up, he would pay the additional duty, if any.

10. The garment and made-up industry has a high incidence of return of unsold stock. In order to obviate the burden of double payment on such goods, I propose to exempt from excise duty, returned goods not exceeding 10 per cent of the value of clearances of the unit in the preceding financial year. Physical verification of stock of such returned goods by Central Excise officers would not be necessary.

11. The doubts and queries raised by the industry have also been examined. A detailed clarification is being issued on these. I would also like to recapitulate to the Hon’ble Members that –
i) The levy does not apply to unbranded goods;
ii) It does not apply to goods made to order for a retail customer;
iii) The benefit of SSI exemption is available to goods bearing or sold under the brand name of the small manufacturer himself
iv) Simplified Export procedure is available to units that predominantly export and sell unbranded goods or goods bearing their own brand name in the domestic market.

12. One issue that Hon’ble Members have persistently raised relates to the reduction of import duty on raw silk (not thrown) from 30 per cent ad valorem to 5 per cent ad valorem. Shri Deve Gowda ji also mentioned it in his intervention today. The annual requirement of raw silk for the weaving industry is around 30,000 metric tonnes. The domestic sericulture industry is able to produce two-thirds of this requirement and around 10,000 metric tonnes needs to be imported. In reducing the duty Government have tried to balance the interests of the sericulture sector and silk weavers. As I have already stated earlier today, Government will keep close watch on import volumes and domestic prices and respond, if required, in the interests of domestic sericulture.

13. Some suggestions have been received in respect of the levy of 1 per cent Central Excise duty on 130 items. I propose to extend RSP based assessment with an abatement of 35 per cent to many of these items so that disputes with regard to valuation are avoided. I also propose to exempt any waste, scrap or parings arising in the course of manufacture of these items as a measure of relief.

14. To provide a simplified regime for taxpayers exclusively manufacturing these items, the following procedural relaxations are being made:

i) Physical verification of premises would not be necessary for new registrants;

ii) Visits to such units by Central Excise officers would be permitted only with due authorisation as in the case of SSI units;

iii) They would be required to file only quarterly returns; and

iv) A simplified return format will be prescribed.

15. Based on the feedback from domestic industry, I am proposing the following reliefs in customs and central excise duties with a view to encourage domestic manufacture:

i) To extend the concessional rate of 5 per cent CVD and Nil SAD to parts of all computer printers imported by actual users;

ii) To exempt seven specified parts of personal computers from levy of special additional duty of customs;

iii) To restore full exemption from excise duty (and CVD) on silicon wafers imported for manufacture of solar cells/modules;

iv) To exempt certain types of coking coal imported for the manufacture of iron or steel from customs duty;

v) To prescribe an unconditional 1 per cent excise duty (and CVD) on mobile handsets including cellular phones in addition to 1 per cent NCCD already leviable; and

vi) To reduce the basic customs duty from 60 to 30 per cent on CKD kits containing a pre-assembled engine, gear box or transmission assembly, imported for the manufacture of vehicles.

16. Notifications to give effect to these changes would be issued in due course and laid on the table of the House.

17. As for Service Tax, I have already announced earlier today our decision to exempt the new levy on health services in entirety both in respect of services provided by hospitals as well as by way of diagnostic tests.

18. Point of taxation Rules are due to come into force from April 1, 2011 and are meant to shift the payment of service tax from only cash basis towards accrual basis. The changes are essential to align the system of payment of taxes between goods and services. Many taxpayers have expressed concerns about some provisions and also sought some time for the switchover on account of changes required in their software. Accordingly, certain changes in the relevant provisions are being worked out and an additional period of three months up to June 30, 2011 is being provided to make the transition. These changes shall be notified shortly after completing the process of consultation.