NEW DELHI: The SEZ boat may be rocked once again. The finance ministry has said that as a principle, complete income-tax exemption for SEZ developers and co-developers should be withdrawn.
North Block had earlier hinted at a minimum alternate tax (MAT) on SEZ units, emphasising that this will bring some parity with non-SEZ exporters most of whom are small exporters hit hard by appreciation of the rupee. However, such a move will require an amendment to the SEZ Act, which could be a long-winded process.
The finance ministry’s latest missive will be a major cause of concern for the SEZ programme as scores of developers have committed huge investments on the strength of tax breaks.
Highly-placed government sources said the finance ministry has sent a letter to the empowered group of ministers (EGoM) on SEZs, seeking withdrawal of direct tax sops due to revenue constraints. It has been argued that notional revenue foregone on account of SEZ tax sops would be Rs 1 lakh crore in 2008-09, and half of it would be on account of direct tax exemption. Loss of revenue could affect allocation of funds for social programmes, ministry officials feel.
The EGoM, headed by external affairs minister Pranab Mukherjee, will debate the issue next week. The plea for extension of tax holiday to STPI units, scheduled to be phased out by 2010, is also likely to be discussed by the ministerial panel.
Despite the finance ministry’s insistence, it would not be easy to withdraw the sops as the exemptions are part of the SEZ Act passed by Parliament. Imposition of tax on SEZs would require amendment to the law for which a Bill has to be piloted by the commerce & industry ministry which is opposed to withdrawal of tax concessions meant for exporters.
Speaking to ET, government sources said the finance ministry, while targeting developers and co-developers, had decided to spare units operating within SEZs from total withdrawal of direct tax exemption. This would disturb stability in the tax regime and discourage investments, a commerce department official said.
At a time when exports face a major challenge due to appreciation of the rupee, the department has been highlighting job creation by SEZs as a major achievement of the programme. It seems the finance ministry is targeting direct tax exemption on two grounds: while buoyancy in direct tax collection is strong, indirect taxes are not growing as fast, with service tax being the lone exception.
It is estimated that more than half of the Rs 6 lakh crore revenue collected during the year would be on account of direct taxes. The SEZ law grants full tax exemption for five years to the units, 50% tax exemption for the next five and tax exemption on ploughed-back profits for another five years.
Developers get tax exemption on development of the processing area where export goods are produced. They get 100% income-tax exemption for 10 years within a block of 15 years. The commerce department is likely to oppose the proposal on the ground that the SEZ Act had attracted investments from players on the basis of the sops promised in the Act. To go back on the provisions of the Act would be a breach of promise.
Although it would be difficult for the government to decide on withdrawing sops provided under an Act, the debate being generated by the finance ministry’s demand could put a shadow on the future of SEZ policy which is expected to attract a lot of foreign direct investment.
“There has to be continuity in policy if we want to attract investments. The debate is not healthy for the economy,” a source said. While the finance ministry has been expressing concern about revenue loss from the beginning, a study commissioned by the ministry was recently in spotlight as it explained that incremental economic activity and job creation justified the tax concessions.
Friday, February 1, 2008
SEZ developers may lose tax benefits
Thursday, January 24, 2008
Export promotion schemes face axe
NEW DELHI: The government on Wednesday indicated that some export promotion schemes that have outlived their utility may be scrapped. Commerce secretary GK Pillai said schemes of marginal use and low utility would be done away with in the annual review of the foreign trade policy this year.
He said exports were certain to hit the $150-billion mark this year, and may even touch $155 billion, just falling short of the $160-billion target for the year. “Exports worth $150 billion are certain this year. If there is a surge, shipments could even go up to $155 billion,” Mr Pillai told reporters on the sidelines of a CII meet on Foreign Trade Policy. He added that an export target of $200 billion for fiscal year 2008-09 seemed feasible.
Clarifying that the schemes to be put on the chopping block are yet to be identified, the commerce secretary pointed out that incentives such as the export promotion capital goods scheme (EPCG) spelt more trouble for exporters, with minimal benefits. He said every year, several exporters received notices for failing to meet export obligations.
Mr Pillai sought inputs from the industry for the Krishnamurty committee, which is likely to submit its report to Prime Minister Manmohan Singh on January 31. The committee is examining ways to help export-oriented manufacturing sectors such as textiles, leather and handicraft, which are suffering from a slowdown in growth.
The commerce ministry would submit its first draft of the trade policy to the revenue department within 10 days, Mr Pillai said. India’s exports for April-November 2007 amounted to $98.38 billion, growing at 22.08% over the previous year.
Russia suspends import of Indian plant products
MOSCOW: Russia will suspend import of plant products from India from January 28 after apparently finding one of the most dangerous grain pest in a batch of Indian beniseed.
"Restrictions will also apply to plant products from third countries which were supplied under phytosanitary certificates issued by India's national plant protection organisation," Rosselkhoznadzor Federal Service for Veterinary and Phytosantiary Supervision spokesman Alexei Alexeyenko said.
Russia adopted restricting measures because "inspectors at a border checkpoint in Novorossiisk found Khapra beetle in a batch of Indian beniseed." It is one of the most dangerous grain pests, the spokesman was quoted as saying by Itar-Tass news agency.
Beniseed is a common oil seed. "On the whole, this case questions the effectiveness of the phytosanitary certification, as well as control and safety of plant products in India," Alexeyenko said.
Last year, Russia placed similar restrictions on Indian plant products imports.
Merchandise exports may not meet $160 b target
The US slowdown and rupee appreciation against the dollar are seen as important reasons for the likely shortfall in export target.
“Exports of $150 billion look a certainty. If there is a surge it may even go near the target. In next year, merchandise exports of $200 billion looks feasible”, Mr G.K. Pillai, Commerce Secretary, told reporters on sidelines of CII meeting here.
Till end-November this fiscal, the country’s merchandise exports stood at $98.38 billion.
The Commerce Secretary also indicated at the meeting that the forthcoming annual supplement to the foreign trade policy would do away with a number of export incentive schemes that have marginal utility, besides simplifying procedures and encouraging self-certification by exporters.
“We will try to go in for a lighter policy with simplified procedures,” he said.
In the next 10 days, the Commerce Ministry plans to send first draft of the proposed annual supplement to the revenue department in the Finance Ministry for its perusal and comments.
Meanwhile, Mr Pillai has asked industry to submit their inputs to the Krishnamurthy Committee soon, which has been set up by the Prime Minister, Dr Manmohan Singh, to go into the problems faced by certain export-oriented manufacturing sectors such as textiles, leather and handicrafts.
Mr V. Krishnamurthy is likely to submit the committee report to the Prime Minister by end January.
On free trade agreement (FTA) with Asean, Mr Pillai said that negotiations on the trade pact are likely to be completed by March, and the agreement would be signed subsequently.
“The FTA with Asean will most likely come into force from January 1, 2009,” he added.
He said that negotiations for similar pacts are on with the European Union (EU), Japan and Korea.
Govt mulls another round of export sops
The government is considering another set of measures — the fourth this financial year — to help exporters cope with a rupee that has strengthened 13 per cent since April.
The measures range from scrapping import duty under the Export Promotion Capital Goods (EPCG) scheme to a percentage point increase in duty remission schemes.
These measures are part of a package of nine concessions that were suggested by the commerce ministry around eight weeks ago and are awaiting cabinet approval.
Meanwhile, the finance ministry took the initiative to offer exporters concessions on November 29 last year.
Those measures included lower interest rates on pre- and post-shipment credit, interest payment for delays in reimbursement of terminal excise duty and central sales tax and remission of service tax payments on three services used by exporters.
Among the proposals pending with Cabinet is one to review export sops, which have already been granted, after September 30 this year. In effect, this is an indication of the continuing impact of a strong rupee on Indian exporters.
Between April and November 2007, exports in dollar terms grew at 22.06 per cent against 26.6 per cent in the same period last year. In rupee terms, exports grew at 8.02 per cent, against 31.42 per cent a year ago.
The commerce ministry feels that scrapping duty for imports under the EPCG scheme would encourage technology infusion in export oriented industries.
Exporters are currently allowed to import capital goods under the scheme at a concessional import duty of 5 per cent against the peak duty of around 7.5 per cent.
The commerce ministry has also suggested that rebated state taxes can be adjusted from Plan funds provided by the central government. State levies account for 6 to 7 per cent of the value of Indian exports.
The other proposals include a one-year extension of tax benefits enjoyed by 100 per cent Export Oriented Units and Software Technology Parks of India under Section 10A and 10B of the Income Tax Act, 1961. These benefits are set to expire in March 2009.
Finance Minister P Chidambaram had announced three export relief packages in July, October and November last year. These packages included service tax exemption for 10 services used by exporters against a demand of more than 20 by the commerce ministry.
EXPORT SOPS — IV
(What the commerce ministry proposes)
# Capital goods imports through EPCG scheme should be allowed at zero import duty.
# In-principle approval for adjusting Centre’s allocation to states for reimbursing state taxes to exporters.
# DEPB/duty drawback like duty remission benefits for SEZs, EoUs through tradable scrips at 2 per cent of export value.
# Extension of tax benefits to EoUs, STPIs for one more year from 31/3/2009.
# Review of export sops in September, 2008.
Export-import control over dual-use chemicals may ease
NEW DELHI: Expect the proposed export-import control over dual use chemicals to be less rigorous. The government is planning to bring down the number of chemicals in the list that it drew up a couple of months ago for strict export-import control. The present thinking in the government is that legitimate trade of these commercially important chemicals should not suffer where we do not have an international obligation to restrict them.
The Ministry of External Affairs and the Ministry of Chemicals had in November agreed to subject international trade in 24 products known as the Australian group of chemicals and many other items in the same class to greater scrutiny.
The Australian group, an association of countries, has a larger list of 63 items as chemical weapons precursors that need stricter licensing. The initial move was aimed at preventing the proliferation of dual use materials from India.
Now, the take of various government departments is all these chemicals should not be subjected to rigorous licensing norms. The chemical and fertiliser department has told the commerce ministry that only five chemicals from the initial list should be subjected to intense regulation. There is no legally binding international obligation on the part of the government to regulate all the chemicals, the department has argued.
While India is not a member of this association of nations called the Australia group, America is. The chemical industry, which is not in favour of any controls, will be asked to support their demand with data, government sources said.
The Ministry of External Affairs has, in the meantime, decided to move a proposal to the director general of foreign trade to introduce a system of intercepting consignments marked to certain customers. The plan is to draw up a list of ‘end users of concern’.
This will be based on global trends in proliferation of weapons of mass destruction, information from other countries and UN Security Council resolutions. The government will authorise the Customs department through a notification to stop any export consignment to these business houses.
Once intercepted, the exporter would be told that he should seek a licence to go ahead with the export. The move has implications for the export of chemicals and allied products, biotechnology materials and products of the aerospace industry.
Wednesday, January 23, 2008
GCC to sign FTA with India this year
DUBAI: The six-member Gulf Cooperation Council (GCC) will sign Free Trade Agreements with India, China and European Union this year, a senior minister has said.
UAE's State Minister for Financial and Industrial Affairs, Mohammed Khalfan bin Kharbash told this to the GCC 11th Conference on 'Future of Gulf Petrochemicals in Abu Dhabi' on Sunday.
At the India-GCC Industrial Forum in Mumbai last year, Minister of Commerce and Industry Kamal Nath had said that India was in the process of negotiating an FTA with the Gulf countries and talks in this regard were likely to be concluded soon.
In the last five years, India's total trade with the Gulf Cooperation Council (GCC) countries has risen more than four-fold from $5.55 billion in 2000-01 to $23.42 billion in 2005-06.
"The period witnessed buoyancy in exports and imports. Signing of the Framework Agreement on Economic Cooperation between India and GCC countries in 2004 was another milestone in the Indo-GCC economic relations," Nath had said.
Monday, January 21, 2008
Peak customs duty may stay intact in Budget 08
NEW DELHI: Peak Customs duty, which stand at 10%, is unlikely to be cut in Budget 2008 following slowdown in the manufacturing sector and negative growth in labour-intensive exports.
Senior officials said while the Centre wanted to reduce duties for the fourth successive year to meet the self-imposed target of achieving Asean levels by 2009, the Prime Minister’s Office (PMO) had asked the finance ministry to look into the industry’s request of a status quo. The industry has said a reduction in peak duties will spell more trouble as it was already grappling with a steadily-appreciating rupee.
It is understood prime minister’s economic advisory council (EAC) has also favoured the continuation of the Customs duty structure to give relief to the domestic industry.
While peak duty stands at 10% today, the target is to bring it down to 4.5-5% by 2010. Duty on a large number of items like polyester products and certain metals have been reduced to 5%. However, if the government decides not to deviate from its planned strategy of bringing average peak down to 5% by 2010, the duty cuts on most products will have to be much sharper in the following year.
Domestic sectors that would get a reprieve if further import duty cuts are not implemented include airconditioners, refrigerators, washing machines, picture tubes, specified plastics and other capital goods that have been witnessing a slowdown. Import duties on all the products are at the present peak duty of 10%.
Lack of buoyancy in indirect tax collections could also act as a deterrent against Customs reduction as it would have an adverse impact on collections. However, a final decision on peak Customs duty will be taken by the Centre after several more rounds of discussions at the highest level.
It would be a difficult decision for a prime minister and finance minister who are acknowledged as reformists globally but have to face elections the following year.
Sunday, January 20, 2008
ASEAN softens approach to strike FTA with India
NEW DELHI: After a series of compromises made by India to remove the hitches blocking the India-Asean free trade agreement (FTA), Asean too seems to be doing its bit in the last leg of the negotiations. In its fresh proposals on duty cuts for the five crucial agricultural products holding up the agreement, it has gone down considerably from its earlier demands.
The issue will be resolved as soon as India gives its nod after suggesting “minor” changes in the Asean’s latest proposal. There would be two more meetings between officials––in February and April this year–– following which the agreement is expected to be formally signed by the two sides.
Speaking to ET, official sources said Asean’s new proposal was more acceptable to India than the previous one as it was more or less in line with what was feasible for the country. As per the new demands, import duties on crude palm oil has to be brought down by India to 43% while that on refined palm oil has to be reduced to 51%. Earlier, the Asean had proposed 30% duty for crude and 40% for refined palm oil.
The Asean has also toned down its demands for pepper, tea and coffee where it has asked for duties to be brought down to 50%, 45% and 45%, respectively. “We may ask for some minor changes in the proposed duties, but the agreement is more or less in place,” an official said. The two sides have also come to a compromise on the end date for implementing tariff cuts for the five products.
While India wanted the end date to be December 2018, the Asean wanted the complete tariff cuts by January 2018. “The two sides have decided on a middle date of July 2018,” the official said.
The FTA will include cut in tariffs for all products except a small negative list of items which will be insulated from tariff cuts. India has 489 items in its negative list, the lowest maintained by the country in any bilateral agreement it has entered into so far.
Indian Prime Minister Manmohan Singh is keen to have the FTA in place as it would serve to consolidate India’s position in South and South-East Asia.
Friday, January 18, 2008
India, Asean free trade deal likely by July
ndia and the 10-member trade bloc Asean may sign the ambitious free trade agreement (FTA) by July 2008, a year later than one of the several deadlines, which have been missed.
Prime Minister Manmohan Singh, during his visit to the 6th India-Asean summit held at Singapore in November 2007, had indicated that India would take a flexible stand in the FTA talks.
According to sources in the know, negotiators from both sides, who met in Bhopal last week, were able to break the deadlock in contentious issues on duty cuts in five highly sensitive farm products of Refined Palm Oil, Crude Palm Oil, Black Tea, Pepper and Coffee as well as the negative list of the Asean countries. I
“Negotiators from India and Asean will meet again in February and April to take forward the progress in the latest round of talks. If all goes well, the treaty could be signed by July this year,” said the source. Negotiators exchanged offers and counter-offers during the Bhopal meet, which will be discussed further.
India had signed a framework agreement on comprehensive economic cooperation with the Asean bloc in October 2003, according to which, negotiations were to conclude by June 2006. With differences remaining unresolved, July 2007 was taken as another deadline, which too did not work out.
India has almost but accepted ASEAN's request on Palm Oils and on other three products - Black Tea, Pepper and Coffee ASEAN is likely to accept India's revised offer.
Another contentious issue was the highly negative list of Asean countries, which exceed 1,200 items against India’s 489. The list is large because the Asean members have individual negative lists. While Vietnam has more than 400 items in its negative list, Malaysia has more than 200 items.
Till recently, Asean has not finalised the list, while India had been progressively pruning it to show its keenness in the FTA. Negotiators from India had objected to a large negative list. According to sources, the Asean bloc is likely to take a softer view on its large negative list and may cut it down.
During the course of the negotiations, India has given several concessions to Asean, which included pruning of its sensitive list to 550 items from the earlier 709, in which import duties would be reduced over a period of time. Most of these products belong to sectors like textiles, machinery and auto as well as chemicals and plastic.
Moreover, India also agreed to compromise on the crucial clause on rules of origin, which provides protection against trade diversion from other countries, with which Asean members have trade ties. Next meeting would be in Lao PDR and it may be the final meeting after which countries would do legals crubbing to ink the deal.
