HIGHLIGHTS OF UNION BUDGET 2008-09

HIGHLIGHTS OF UNION BUDGET 2008-09
(In relation to Indian Rubber Industry)

1. Average GDP for last three year was 8.8 per cent. Estimated growth for ‘services’ and ‘manufacturing’ at 10.7 per cent and 9.4 per cent respectively.
2. Special Purpose Fund of Rs.19.41 crore provided in 2008-09 for re-plantation and rejuvenation of rubber.
3. Two funds of Rs.2,000 crore each to be created in SIDBI – one for risk capital financing and other for enhancing refinance capability to the MSME-sector.
4. Requirement of PAN extended to all transactions in the financial market subject to suitable threshold exemption limits.
5. Industrial Training Institute: 238 ITIs being upgraded under the World Bank assisted scheme; Under the PPP scheme, 309 ITIs have been identified in 29 States with corresponding industry partners and agreements signed in 244 cases; Rs.750 crore set apart in 2008-09 in anticipation of upgrading 300 more ITIs.
6. Revenue receipts of Central Government for 2008-09 projected at Rs.602,935 crore and revenue expenditure at Rs. 658,119crore; Revenue deficit for 2008-09 estimated at Rs.55,184crore, which amounts to 1.0 per cent of GDP; Fiscal deficit for 2008-09 estimated at Rs.133,287crore, which is 2.5 per cent of GDP.

INDIRECT TAXES:

Custom Duties:

1. No change in the peak rate of customs duty.
2. Custom duty exemption is proposed to be with drawn on naphtha for use in the manufacture of polymers in order to correct price distortions and revenue losses. Naphtha for use in the manufacture of polymers will be subjected to normal rate of 5 per cent.
3. Basic customs duty on crude or unrefined sulphur (2503 00) is being reduced from 5% to 2% (S.N.60 of notification No.21/2002-customs as amended vide notification No.21/2008-customrs refers)
4. Customs duty on chlorobutyl rubber and bromobutyl rubber of heading 4002 has been reduced from 10% of 5% (S.No.575 of notification No. 21/2002-Customs, inserted vide notification No. 21/20080-Customs refers).
5. Customs duty on polyester tire cord fabric of sub-heading 5902 20 has been reduced from 10% to 5% (S. No 576 of notification No. 21/2002-Customs inserted vide notification No. 21/2008-Customs refers).
6. Customs duty on specified machinery (falling under chapter 84) for manufacture and subsequent export of sports goods, has been reduced from 7.5% to 5% (S.No.580 of notification No.21/2002-Customs, inserted vide notification No. 21/2008-Customs refers).
7. Customs duty on specified raw materials for manufacture and subsequent export of sports goods, upto 3% of the FOB value of export of sports goods in the preceding year, has been reduced from 10% to ‘nil’, subject to certain conditions. (S.No. 583 of notification no.21/2002-Customs inserted vide Notification No. 21/2008-Customs refers)

Excise Duty

1. General CENVAT rate on all goods reduces from 16% to 14% to give a stimulus to the manufacturing sector.
2. Excise duty on heat resistant rubber tension tape (HRRTT) falling under sub-heading 4008 21 is being reduced from 16% to 8% (S. No. 82A inserted in notification No. 4/2006-Central Excise, dated the 1st March, 2006 vide notification No. 4/2008-CE refers).
3. Rates of abatement on all items under MRP based assessment, on which the rate of excise duty has been reduced, are being revised suitably. (Notification No. 2/2006-CE (N.T.) dated 1-3-2006 amended vide notification No. 14/2008-CE (N.T.)

Service tax

1. Four services brought under service tax net namely, asset management service provided under ULIP, services provided by stock/commodity exchanges and clearing houses; right to use goods, in cases where VAT is not payable; and customized software, to bring it on par with packaged software and other IT services.
2. The annual threshold limit of service tax exemption for small service providers has been increased from the present level of Rs.8lakh to Rs.10lakh with effect from 01.04.2008, Provided that the aggregate value of taxable services rendered by such provider of taxable service from one or more premises, does no exceed Rs.10lakh in the preceding financial year. (refer Notification No. 8/2008-Service Tax, dated 01.03.2008)
3. Consequent upon increase in threshold limit of exemption from Rs.8lakh to Rs.10lakh , notification No. 26/2005-Service Tax dated 07.06.05 and notification No. 27/2005-Service Tax dated 07.06.05 have been amended to raise the limit for obtaining service tax registration from Rs.7lakh to Rs.9lakh. (refer Notification No.9/2008-Service Tax, No 10/2008-Service Tax, and No.11/2008-Service Tax, all dated 01.03.2008)

Changes in the Service tax Rules, 1994:

1. Rule 6 is being amended to insert sub-rule (1A) to extend the facility to pay service tax in advance to all taxable persons. Service tax paid in advance is allowed to be self-adjusted towards service tax liable to be paid for the subsequent period;
2. Rule 6(4B) (iii) is being amended to allow self-adjustment of excess service tax paid up to Rs.1lakh for a relevant month or quarter, as the case may be, instead of the earlier limit of Rs.50,000.
3. Rule 7B is being amended to allow an assesses to rectify mistakes and file revised return within 90 days, instead of the earlier limit of 60 days, from the due date for filing of original return;
4. Rule 7C is being amended to empower the Central Excise Officer to reduce or waive the penalty for delayed filing of return, where the gross amount of service tax payable is nil.

(Refer notification No.4/2008-Service Tax, dated 01.03.2008) The above changes will come into effect from 1st March 2008.

Change in the Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007:

1. Rule 3(1) is being amended to enhance the rate prescribed for optional scheme for payment of service tax for works contract service from the present rate of 2% of the total value of the contract to 4% of the total value of the contract. (Refer notification No.7/2008-Service Tax, dated 01.03.2008).
The above change will come into effect from 1st March 2008.

DIRECT TAXES:

Income Tax

1. Threshold limit of exemption from personal income tax in the case of all assessed increased to Rs.1, 50, 000/-. The slabs and rates of tax are:
                   Up to Rs.1, 50, 000                                    NIL
                   Rs.1, 50, 000 to Rs.3, 00, 000                    10%
                   Rs.3, 00, 001 to Rs.5, 00, 000                    20%
                   Rs.5, 00, 001 and above                             30%
2. In case of a woman assesses, the threshold limit increased from Rs. 145,000 to Rs.180,000; for senior citizens, the threshold limit increased from Rs.1, 95, 000 to Rs.2, 25, 000.
3. No change in the corporate income tax rates.
4. No change in the rate of surcharge.
5. Senior Citizen Saving Scheme 2004 and the Post Office Time Deposit Account added to the basket of saving instruments under Section 80C of the Income Tax Act.
6. Additional deduction of Rs.15,000 allowed under Section 80D to an individual paying medical insurance premium for his/her parent or parents.
7. Corporate debt instruments issued in demat form and listed on recognized stock exempted from TDS.
8. Creche facilities, sponsorship of an employee sportsperson, organizing sports events for employees and guest houses excluded from the purview of FBT.
9. Parent company allowed to set off the dividend received from its subsidiary company against dividend distributed by the parent company; provided that the dividend received has suffered DDT and the parent company is not a subsidiary of another company.
10. Rate of tax on short term capital gains under Section 111A and Section 115AD increased to 15 per cent.
11. Banking Cash Transaction Tax (BCTT) being withdrawn with effect from April 1, 2009.

CST and a Roadmap towards GST

Central Sales Tax rate being reduced from 3 per cent to 2 per cent from April 1, 2008.

Budget will harm nobody & help industry

Industry’s reaction on the whole has, however, been oscillating between the neutral and the positive. The cut in peak Cenvat rate (from 16% to 14%) is in keeping with the government’s desire to boost consumption. The pay commission and the money saved by way of the more tax payer-friendly slabs should also boost spending. The average growth of industrial production had declined from 11% at the beginning of the fiscal to a monthly average of 9%. Clearly, IIP growth in the latter half of the year is tending towards the 5% -7% range. IIP growth in December was only 7.6%, & in January 2008 it is 5.3%.
      
The six core and infrastructure sector have been struggling recently, with growth down to the low single digits. Growth in December, was an alarmingly low 4%, while in November, it was an anaemic 5.3%.
         
It is against this bleak backdrop that the FM has lowered central excise and customs duties on a range of inputs. Customs duties on project imports have been cut from 7.5% to 5%, a move which will probably spur companies to build new refineries, and steel and cement plants. It’s a Budget which will harm nobody and help industry.
     
Two-wheeler excise duty has gone down from 16% to 12%. And those intending to purchase Nanos can now do so at lower prices as excise duty on small cars has been brought down to 14%. The only uncertainty, industry observers say, is in the context of the move towards a unified goods and service tax. Experts say that the central cenvat rate will have had to come down from 16% to a lower rate as the Centre and the States were moving towards a composite (Centre plus State) GST rate of 20%. In the context of an industrial slowdown, the excise cut makes sense.
     
Automotive has been one of the few sectors that have found this Budget extremely favorable. The finance minister has cut duty on two-and three-wheelers, besides announcing steep mark-downs for green and hybrid vehicles. Commercial vehicles, too, stand to benefit, thanks to the excise reduction on buses to 12% and trucks to 14%. This will bring down prices by Rs.20, 000 – Rs.40, 000. 4% cut in excise duty (from 16% to 12%), small cars will cost Rs.7, 000-16,000 less. As for two-wheelers, the price cuts are likely to be modest-around Rs.1, 000-Rs.1, 300 for executive-class motorcycles and Rs.1,500-Rs.1,800 for top-end performance products.

Already, the top players in the small car market have announced mark-downs. There’s good news on the green vehicles front too. Hybrid duties are down from 24% to 14%, the relief is negligible as it is fully imported. However, it is a matter of time before a flurry of global green wheels hit the road. India is no longer a follower of GM products, but a place to lead with in terms of future technologies like hybrids.
      
A global slowdown may still be a bit away, but the country is already putting on the armour. In a move aimed at insulating domestic manufacturing and facilitating more consumption, the Union Budget has slashed median excise duty from 16% to 14%.
       
“The manufacturing sector is backbone of any economy. It is consumption that drives production, and it is production that drives investment.
        
The 2% cut meets the long-standing demand of the industry, which now has the option of boosting its sales by passing on the benefit to consumers or pumping up its bottom lines.

Budget 2008 has made it more difficult for export-oriented units (EOUs) to sell in the domestic market. EOUS, generally elibible to sell up to 50% of their annual sales domestically, will now have to pay customs duty at 50% of applicable rates for such sales, compared to 25% till now.

Costs are likely to go up for polymer manufacturers as the finance minister has re-imposed 5% import duty on naphtha, from nil last year. Thanks to a complex regime of exported from refineries and is imported by manufacturers of polymers, leading to price distortions an revenue losses.

This will adversely impact companies like RIL and Haldia Petrochemicals, which use naphtha for polymer production. Till now, RIL used to export naphtha from its refinery availing of the benefits of benefits of being an EOU, while its erstwhile subsidiary IPCL used to import it duty-free.

Petrochemicals manufacturers are not happy with the development. We are disappointed by the re-imposition of 5% import duty on naphtha used in production of polymers. This is not in line with the basic rule that customs duty on raw materials should be less than that on the finished product, said Chemicals and Petrochemicals Manufacturers Association of India president KG Ramanathan.

A slow global and UD economy have made the finance minister flag off the gravy train for consumers. The 204 million-odd Indian households can buy cheaper soaps, detergents, mobikes, small cars, direct-to-home(DTH) satellite TV connections, medicines. And yes, a cleaner glass of drinking water at home will also come cheap.

The finance minister has at one go addressed the objectives of inflation control (currently hovering just under 5%) as well as spurring consumer demand, which has been flagging in a host of sectors for the past one year, most notably in two-wheelers.
         
Mr. Chidambaram’s tax proposals should push up consumer confidence. As he said, consumption drives production, and that in turn drive investment. The 13-million middle-class households (annual household income between Rs.2lakh and Rs.10lakh), many of whom pay income tax slabs and an increase in exemption limits. While a good amount of this extra income will end up as savings, a happy and confident consumer is likely to splurge as well.

There should also be a general cheer in many homes because small cars, two-wheelers and their tires will now be cheaper.

For the past year or two, the finance minister has provided enough hints that he would prune tax rates in compliance by taxpayers improved. Undoubtedly, personal tax collections have grown at close to 40% over the last fiscal – possibly the highest ever – reflecting greater compliance, especially among the self-employed. The finance minister kept his word. But it was the extent of the cuts that took most people by surprise.

The FM doled out several lollies: from increasing exemption limits to a higher deduction for medical insurance premium for medical insurance premium, and a tax exemption for those senior citizens availing of loans under the reverse mortgage scheme. All these will ensure that people will have more money to save and of course spend over the next one year. This clearly augurs well for the economy, which is showing signs of slowing down a bit this fiscal.

Also, the FM has pushed perhaps the biggest restructuring of tax slabs, benefiting all three categories of taxpayers – individuals, women and senior citizens. For male taxpayers, the tax threshold begins only after Rs.1.5lakh, while for women it is Rs.1.80lakh and for senior citizens, it is Rs.2.25lakh. The lowest rate of 10% will now stretch all the way up to Rs.3lakh, after which 20% tax will apply. Earlier, the 20% tax rate was levied on those in the income bracket of Rs.1.5lakh to Rs.2.5lakh. That rate will now apply to those in the Rs.3lakh to Rs.5lakh bracket.

Tax at the highest bracket (30%) will kick in only for incomes above Rs.5lakh – twice the earlier limit of Rs.2.5lakh. What remains unchanged, however, is the surcharge of 10% levied on those with incomes in excess of Rs.10lakh. The widening of the slab means that while earlier having an income of say Rs.2.9lakh put an individual in the 30% tax bracket, that level of income will now attract a rate of just 10% this year.

	2006-2007   Actual	2007-2008  Budget Estimates	2007-2008   Revised Estimates	2008-2009   Budget Estimates
1.Revenue Receipts   2.Tax Revenue (net to Centre)   3.Non-tax Revenue   4.capital Receipts 5+6+7)$   5.Recoveries of Loans   6.Other Receipts   7.Borrowings and other Liabilities $   8.Total Receipts (1+4)$   9.Non-plan Expenditure   10.On Revenue Account of which   11.Interest Payments   12.On Capital Account   13.Plan Expenditure   14.On Revenue Account   15.On Capital Account   16.Total Expenditure (9+13)   17.Revenue Expenditure (10+14)   18.Capital Expenditure (12+15)   19.Revenue Deficit (17-1)             20.Fiscal Deficit               {16(1+5+6)}   21.Primary Deficit (20-11)	434387   351182   83205   149000   5893   534   142573   583387   413527   372191   150272   41336   169860   142418   27442   583387   514609   68778   80222     -1.9*         142573       -3.5*   -7699     -0.2*	486422   403872   82550   194099   1500   41651   150948   680521   475421   383546   158995   91875   205100   174354   30746   680521   557900   122621   71478      -1.5*         150948      -3.3*   -8047     -0.2*	525098   431773   93325   184275   4497   36125   143653   709373   501849   412975   171971   88874   207524   175611   31913   709373   588586   120787   63488      -1.4*         143653       -3.1*   -28318     -0.6*	602935   507150   95785   147949   4497   10165   133287   750884   507498   448352   190807   59146   243386   209767   33619   750884   658119   92765   55184       -1*         133287       -2.5*   -57520     -1.1*

 

*GDP for BE 2008-2009 has been projected at Rs.5303770crore assuming 13% growth over the advance estimate of 2007-2008 (Rs.4693602crore) released by CSO. $Does not include receipts in respect of Market Stabilization Scheme, which will remain in the cash balance of the Central government and will not be used for expenditure.

 

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