Budget update - CII submits its pre budget memorandum to MOF.

CII feels that while formulating Budget 2011-12, it would be necessary to keep in mind that there are a number of serious areas of concern for the industry, which could pose a downside risk to GDP growth next year.

In a meeting with the revenue secretary and other officials of the ministry of finance, the Confederation of Indian Industry made a presentation to offer its suggestions on Budget 2011-12 and submit its pre-budget memorandum. CII has stressed on reducing the fiscal deficit to 4.8% of GDP in FY2012 from the budgeted level of 5.5% in the current year.

In a presentation made by Mr Sunil Kant Munjal chairman of CII Economic Policy Council, he emphasized that the fiscal deficit needs to be reduced by augmenting revenues on the one hand and rationalizing expenditure on the other. He said that “The Budget should aim at facilitating convergence to the long-term objective of having a simplified and rational taxation system.”

CII feels that while formulating Budget 2011-12, it would be necessary to keep in mind that there are a number of serious areas of concern for the industry, which could pose a downside risk to GDP growth next year. Liquidity in the banking system is tight and interest rates are moving up, which has started affecting capital formation adversely. In this backdrop, it has suggested that the next Budget of the Central government needs to have a balanced approach: revenue raising measures need to be balanced against some incentives to industry. The Budget should also aim at facilitating convergence to the long-term objective of having a simplified and rational taxation system, stressed the CII release.

Among the important measures to augment revenues next fiscal, CII has suggested raising INR 50,000 crore through disinvestment and another INR 50,000 crore though facilitating the settlement of funds locked up in disputes and litigations. Emphasizing that tax collection can be improved without increasing the rates, it has strongly pitched for expanding the base of services tax to include all services like railway fares & freights with only a small negative list, and widening the tax net to include large part of the informal sector.

On measures relating to rationalizing expenditure, CII has suggested that the government should reduce subsidies and interest payments, which together account for over 57% of non-plan expenditure. This is possible by slashing food & fertilizer subsidies, decontrolling the price of petroleum products and improving the efficiency of funds allocated to social sectors. Better delivery of social services can be achieved by forging partnerships with the private sector, especially in the areas of health, education and skills.

In its recommendations on indirect taxes, CII has asked for continuation of 10% rate of customs duty. Any reduction in customs duty at this juncture would be counterproductive, as many countries continue to face low levels of growth and a surge in imports could mar the recovery prospects of domestic industry. It has urged the Government to remove anomalies in customs duty due to inverted duty structure in the case of Ferro Vanadium, Glycerine, Soaps and Tyres. CII has also recommended that the customs duty on non-coking coal; petroleum coke; scrap of copper, zinc & lead, ferro-nickel and waste & scrap of paper needs to be reduced from 5% to NIL.

Further, given that the existing general rate of excise duty of 10% is at par with the proposed Central GST rate, it is proposed to keep it unchanged. Among sectoral recommendations, CII has suggested a reduction in the excise duty on packaged drinking water from 10% to 4% and rationalization of excise duty on cement with abatement on retail sale price. Cement has a complex excise duty structure with specific as well as advolarem duty and it is the only product on which excise duty is levied on MRP without allowing any abatement. CII has also suggested that the Central Sales Tax rate be reduced from 2% to NIL in view of the further likely delay in implementation of Goods & Services Tax.

Seeking rationalization in direct taxes, CII has proposed the abolition of the surcharge and cess on corporate taxation and reduction in MAT to 10% from 18%. Ideally, it feels that MAT should be abolished as it dilutes the very purpose for which tax incentives were offered in the first place. CII has also sought the complete elimination of cascading effect of dividend distribution tax by extending the benefit to intermediate subsidiaries.

With a view to allow industry to keep pace with rapidly improving technology, it has suggested that the deprecation rate on plant & machinery is enhanced from 15% to 25%. R&D initiatives are proposed to be stepped up by extending the tax incentives under Section 35 (2AB) of the Income Tax Act (which allows 200% weighted deduction on expenses incurred on in-house scientific research to select sectors) to all sectors for a period of next 10 years.


At a time when the export prospects of industry have been hit by the slow and uncertain economic recovery of major western economies, CII has stressed on extending the time line of the tax benefits available under Sections 10A and 10B for next 5 years, which is set to expire at the end of March 2011.

Source : steelguru.com