29 February 2008 10:58 [Source: ICIS news]
MUMBAI (ICIS news)--India's fertilizer and chemicals sector is to get indirect tax breaks, said Finance Minister Palaniappan Chidambaram on Friday in his budget speech for the 2008-2009 fiscal year.
In order to support domestic fertilizer production, customs duty on crude and unrefined sulphur would be cut from 5% to 2%, while tax on phosphoric acid and all project-related imports would be slashed from 7.5% to 5%, he said.
Chidambaram also proposed not to change the peak rate of customs duty as the Indian rupee had appreciated 9.8% versus the US dollar since April 2007.
The government would continue providing fertilizers to farmers at subsidised prices and was examining proposals to move to a nutrient-based subsidy regime and to alternative methods of delivering the subsidy, Chidambaram said.
"Thanks to a complex regime of export benefits and duty exemptions, naphtha is exported from refineries and naphtha is imported by manufacturers of polymers, leading to price distortions and revenue losses," he said.
The duty exemption on naphtha for use in the manufacture of polymers was withdrawn and it is now subject to the normal rate of 5%, he added.
"However, naphtha imported for the production of fertilizers will continue to be exempt from import duty," Chidambaram said.
On the excise front, the central value added tax (CENVAT) on all goods was cut from 16% to 14%.
The 1% excise duty on polyester filament yarn (PFY), which was the only yarn suffering this levy, was removed and shifted to cellular mobile phones.
Excise duty on specified packaging material was halved to 8%, while that on small cars and two- and three-wheelers was cut from 16% to 12% in the budget.
Excise duty on hybrid cars was slashed to 14% from 24%, he said.
"The UPA government inherited a tax to GDP ratio of 9.2% in 2003-2004. At the end of 2007-2008, that ratio would have risen to 12.5%," Chidambaram said.
The government would suffer a loss of around Rs59bn ($1.5bn) on the back of these indirect tax measures, he added.
($1 = Rs39.84)
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