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Realigning duty rates

CORPORATE INDIA IS more accustomed to relying on backroom manoeuvres and lobbying for securing a favourable tax regime from the government. In the circumstances, it is quite extraordinary that Jindal Aluminium should have adopted an aggressive posture in coming out with a newspaper advertisement castigating the Government for not bringing down the import duty on raw aluminium.

If that is not unusual in itself, what most certainly is is the copy accusing the top brass in the Finance Ministry of corruption in determining the Customs duty rate. At a press conference later in Bangalore, Mr S. R. Jindal, Chairman and Managing Direc tor of the company, left no one in doubt that the target of attack is the Finance Minister himself.

The substance of Jindal Aluminium's charge is that the Customs duty rates on raw ingots and its downstream aluminium products are the same. The absence of such a duty differential jeopardises the prospects of downstream producers. It is a well settled pr inciple of taxation that there should be increasingly regressive Customs duty rate along the value chain in manufacture so that the resultant protection from a higher tariff offers an incentive for domestic value addition. Viewed from that perspective, t he existing duty structure is not right. But unfortunately, such aberrations abound in the nation's import tariff regime with steel being another widely cited example. Here, in the name of protecting the domestic steel industry especially in the public s ector, the duty rates on ingots and on downstream products are on par.

But considerations of prudent fiscal policy apart, it is clear that neither party in this public squabble has been completely transparent. The Jindals initially contended that the duty rate was hiked by the BJP-led Government. But when it was pointed out that the duty had not been changed from the time prior to 1998, when the present government came to power, they responded by stating that the Government had continued to keep the rate at the earlier high level. Now there is a big difference between a ch arge of hiking the duty rate and of keeping it at the same old high level, especially in the context of accusations of malafide in the determination of tariff.

Similarly, the government spokesman too has tried to dismiss the claim of injury from a high tax rate on raw aluminium import by saying that the Jindals do not import raw aluminium but source it from a local producer. This clearly ignores the reality of domestic prices often being fixed after taking into account the duty paid cost of the product when imported. Equally, for the Ministry to take credit for an across-the-board reduction in surcharge on imports is an example of obfuscation of the issue. Ina smuch as the reduction was applicable on imports of all manner of goods and not just aluminium products, it could hardly be construed as a correction of a fiscal imbalance in this particular sector. An element of discretion in the choice of rates or the sectors in which rationalisation will be attempted has always been a feature of government policy. This has naturally attracted suspicions of malafide, though such criticism has in the past been somewhat muted. It is only now that the issue has come out in the open. The Government no longer has the luxury of ducking the question. It must come forward and say where it stands with regard to realigning the import duty rates on generally accepted principles of taxation (promoting domestic value addition) no t just for aluminium but across all products where such anomalies may persist.