P. Chidambaram's interim budget introduced few major tax initiatives, but did offer targeted relief to certain industries.
With a general election looming, the Indian Finance Minister told parliament that the current financial year will end on a "satisfactory note." The fiscal deficit is expected to hit 4.6 percent of gross domestic product (GDP), and the revenue deficit will total 3.3 percent, before falling to 4.1 percent and 3 percent in 2014/15, he said.
In keeping with convention, Chidambaram did not unveil any changes to the country's main tax laws. He did nevertheless say that the current economic situation demands a series of interventions that cannot wait for the introduction of the regular
Budget later this year. In particular, the manufacturing sector is badly in need of a boost, he said.
To stimulate growth in the capital goods and consumer non-durables markets, the excise duty on all goods falling under chapters 84 and 85 of the Central Excise Tariff Act will be reduced from 12 percent to 10 percent. The lower rate will remain in force until June 30, when it will be reviewed.
The automotive industry – described by Chidambaram as experiencing "unprecedented negative growth" – will benefit from cuts, too; small cars, motorcycles, and scooters will be covered by an 8 percent rate, instead of 12 percent, the duty on SUVs will fall from 30 to 24 percent, and tax on large and mid-segment cars will fall from 27/24 percent to 24/20 percent. These rates will also apply until June 30.
The excise duties for all categories of mobile handsets will be restructured, and the customs duties on non-edible grade industrial oils, fatty acids, and fatty alcohols will be made equal at 7 percent. The countervailing duty exemption applicable to imported road construction machinery will be scrapped to encourage domestic production.
A service tax exemption will be made available for the loading and unloading, packing, storage, and warehousing of rice. At present, only the process for paddy is exempt. He has also agreed to the Health Ministry's request that services provided by Cord Blood Banks should be categorized as health care services, and therefore exempt from service tax.
Turning to the contentious subject of tax avoidance and evasion, Chidambaram claimed that the Government is winning its fight against illegal offshore accounts. It has succeeded in obtaining information in 67 cases, and is taking action to determine the appropriate tax liabilities and penalties. Further inquiries have been launched into accounts held by Indian entities in no- or low-tax jurisdictions, he said.
An election is due by May at the latest.
Source : tax-news.com