The Cenvat trauma and cascading effect.The growing commodity price rise and input raw material costs have provedthat the Modvat and the more liberal Cenvat scheme, is neither a boon tothe manufacturer and Service Provider nor the ultimate customer and ineffect, it is nothing but revenue out go. Fixing higher rate of duty andcontrolling the cascading effect by providing the credit chain facility hasproved ineffective and as such it is felt that lowering the tax rates with thecredit chain facility with a specific time lag for utilization and refund as isprevalent in VAT schemes in some of the states will be more practical.
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The Cenvat trauma and cascading effect.
ReplyDeleteThe growing commodity price rise and input raw material costs have proved
that the Modvat and the more liberal Cenvat scheme, is neither a boon to
the manufacturer and Service Provider nor the ultimate customer and in
effect, it is nothing but revenue out go. Fixing higher rate of duty and
controlling the cascading effect by providing the credit chain facility has
proved ineffective and as such it is felt that lowering the tax rates with the
credit chain facility with a specific time lag for utilization and refund as is
prevalent in VAT schemes in some of the states will be more practical. As
per the Tamil Nadu Value Added Tax Act, 2006, the dealer has to make a
claim for refund of unutilized input tax credit with a period of 180 days from
the date of accrual of such input tax credit or before the closure of the next
financial year whichever is later failing which the credit shall lapse to
Government. Similarly, in the case of capital goods, only utilization of the
credit for use in the course of business of taxable good shall be allowed and
deduction of such input tax credit shall be allowed only after the
commencement of commercial production and over a period of 3 years in
the manner as may be prescribed and after the expiry of three years, the
unavailed input tax credit shall stand lapse to Government. As a prelude to
roll-out of GST by the next fiscal, expansion of tax net by pruning the
existing exemption list of commodities and services, reduction in rate of
indirect tax rates, removal of all exemptions including area based exemption
in the 2011 Union Budget will be a desirable proposition.
Growing Environment concern:
ReplyDeleteAs the largest democracy in the world having 1/7th of the area of the
world with over 1.5 billion population, India has to take a proactive role in
climate change and global warming. The growth momentum and economic
buoyancy attained due to the economic reforms should not be allowed to
plunge our environment. We need to emulate the enviable and sensible
initiatives taken by other countries in this regard. Antigua and Barbuda,
a small island nation has enforced the Environmental Protection Levy Act,
2002 and collecting levy at the rates fixed on the select goods manufactured
or imported for financing the cost of protecting the environment and the
preservation and enhancement of the environments. In Germany, one
percent of the turnover has to be paid to the Government by the industries
using plastics as packing materials as environment protection. In France
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and Germany, compulsory environmental levies are in force on airlines.
In Israel also, the Ministry of Environmental Protection is spearheading
a number of initiatives to protect and strengthen the environment.
Similar Environment Protection Levies and Health Protection Levies can
be considered in India also on a host of commodities and services in
consultation with the concerned Ministries.
Impending Agrarian crisis:
The impending global food crisis warned by the Food and Agriculture
Organization (FAO) underlines the urgent need for a second green
revolution. FAO has opined that rules are needed to curb the speculation
in surging commodity prices and has cautioned that higher prices and
volatility will continue in the next years if we fail to tackle the structural
causes of imbalances in the agricultural system. Over the next 40 years,
a 70 per cent increase in agricultural production will be needed worldwide
and a 100% increase in developing countries to meet the demands of a
growing population. This alarm situation has to be seen as an opportunity
for India from the long term perspective and therefore the focus of attention
should be agriculture. India also has to follow the suit of China and Brazil
by investing heavily in research and the development of new agricultural
techniques and practices. ‘Food insecurity will affect the poorest populations
most seriously – Let us not allow this to happen’.
Amnesty is moral hazard:
Any amnesty scheme has proved to be a moral hazard as it will only
encourage the people to indulge in more malpractices. After the 9/11
terror strike in the US, countries have woken up to the fact that terror
funding, drug and corruption money are all interlinked. We need to use
our economic clout to make tax havens and countries with banking secrecy
laws see reason. The tax compliance will depend on the behavioral attitude,
professional and moral ethics of the individual or group concerned and
more importantly the deterrent action in force and it has nothing to do with
controlled regime or liberal self assessment regime.
SEZ imbroglio and concern of the Parliamentary Standing Committee
ReplyDeleteon Finance
Also, the Budget is an occasion to clear the misgiving in the minds of the
empowered Aam Adhmi due to the concern expressed by the Parliament’s
Standing Committee on Finance for not doing a review of tax exemption
given to Special Economic Zones to distinguish between revenue foregone
on account of exemptions/concessions and losses due to the exchequer due
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to pilferage of revenue. At present, units in SEZs enjoy 100 per cent tax
exemption on their income for the first five years, 50 per cent in the next
five years and another 50 per cent on re-invested profits in the following
five years.SEZ developers get 100 per cent tax exemption on profits for 10
years, which can be used in the first 15 years. On a conservative estimate,
as the reports, due to these tax sops, the finance ministry had to forgo
revenue of Rs 5,266 crore (Rs 52.66 billion) in 2009-10. It appears that
in the Direct Taxes Code, the finance ministry has proposed to do away
with all exemptions to investments in SEZs beyond April 2011. Since the
DTC does not require any constitutional amendment or ratification by the
State Governments, the roll out of DTC in the current can be considered for
implementation from April 2011 itself as per the original plan. This will help
to bring to an end to all the exemptions hitherto enjoyed by SEZ once for all,
as too much support is not good.
Finally, the endevour of the Government must be to bring gross
domestic happiness and not mere GDP growth.
(The views expressed are strictly personal in pursuit of a good cause)
Ettirankandath Krishnadas, Inspector of Customs, Central Excise & Service
Tax, Sree Kailasam, Kinassery, Palakkad – 678 701 Kerala
(Sir, I am working in the Department of Customs & Central Excise Department for
the last 21 years).