Opinion - Editorials

A welcome denouement

The modifications announced by Finance Minister P. Chidambaram to his budget proposals might not be significant in fiscal terms. They are still noteworthy in that they address, at least partially, certain genuine concerns of industry and taxpayers. The dual duty structure on cement was one of the most controversial budgetary proposals, widely criticised even outside the cement industry. Viewing it, with some justification, as a form of price control through the back door, the industry resisted moves to peg retail cement prices at last year's level. The originally proposed specific duty of Rs.600 per tonne if the retail price exceeded Rs.190 a bag has been replaced with an ad valorem duty of 12 per cent. Cement manufacturers are expected to pass on the benefit of this tax rationalisation, amounting to approximately Rs.7 a bag, to consumers. While cement sold at less than Rs.190 a bag would continue to enjoy a concessional duty of Rs.350 a tonne, the Finance Minister seems to have succeeded in both mollifying the cement industry and bringing about a price reduction at the retail level. Holding the price had been the original objective even if the means first proposed proved irksome and went against the philosophy of tax simplification.

The lowering of export duty on low-grade iron ore has come in the face of stiff resistance by leading importers, especially China, who have already cancelled orders. The larger question of whether domestic ore should be utilised primarily by the fast growing domestic steel industry is still open but in partially conceding the ore exporters' demand the government has paid heed to their genuine difficulties in meeting commitments. While the decision to treat Employee Stock Option Plans (ESOPs) as a fringe benefit remains, the tax will be calculated at the time of vesting. It appears that collection of the tax will become simpler. However detailed guidelines on calculating the fair value are awaited. Venture funds will now play a greater role in mobilising funds for infrastructure projects with the government agreeing to give them pass-though benefits. This important benefit, routinely given in many other countries to facilitate funding of infrastructure and other critical sectors, has been conceded, mainly because of the enormous potential the relatively nascent venture funds hold. A few other concessions such as the reduction in duties on refrigerated vans and certain types of food supplements and convenience foods will benefit the highly labour-intensive food processing industry. Far more than the tax concessions, it is the Finance Minister's open-minded approach to removing difficulties caused by the budget proposals that is to be commended.

© Copyright 2000 - 2009 The Hindu