UNION BUDGET 2006-07 HICKS GROUP

Manufacturing Sector In-2004-05 the growth rate was 7.5% with the manufacturing sector growing at 8.1%. In the current year the CSO’s advance estimates shows that GDP is likely to grow at 8.1% with the manufacturing sector expected to grow at 9.4% Growth rate in the manufacturing sector (%) (%) Industrial Production index Sector wise

In-2004-05 the growth rate was 7.5% with the manufacturing sector growing at 8.1%.

In the current year the CSO’s advance estimates shows that GDP is likely to grow at 8.1% with the manufacturing sector expected to grow at 9.4%

Tax Tax to GDP ratio up at 10.5%. Targeted at 11.2% in the financial year 2006-07 Revenue receipts in the financial year 2005-06 was 9.9% of GDP.it is expected to be 10.3% of GDP in the financial year 2006-07 Corporate tax forms 29.9% of the total tax receipts. Whereas Goods tax (Customs, Excise, CVD, VAT etc.) comprises of 51.9% of total tax receipts. (17.9%) (29.9%) (51.9%) Def : Tax - A charge imposed by government on the annual gains of a person, corporation, or other taxable unit derived through work, business pursuits, investments, property dealings, and other sources determined in accordance with the Internal Revenue Code or state law (% of GDP) (51.9%) (29.9%)

Tax to GDP ratio up at 10.5%. Targeted at 11.2% in the financial year 2006-07

Revenue receipts in the financial year 2005-06 was 9.9% of GDP.it is expected to be 10.3% of GDP in the financial year 2006-07

Corporate tax forms 29.9% of the total tax receipts.

Whereas Goods tax (Customs, Excise, CVD, VAT etc.) comprises of 51.9% of total tax receipts.

Corporate Tax No change in corporate tax rates other than MAT Minimum Alternate Tax (MAT) risen from 7.5% to 10% Credit for MAT paid against normal tax payable can be availed for a period of 7 years Security Transaction Tax rates increased by 25% across the board Fringe Benefit Tax (FBT) provisions amended allowing marginal relief to tax payers Dematerialization of TDS certificates deferred by 2 years No more annual TDS and TCS returns Rs. 10000 fine for quoting false TAN (%) Corporate tax rate Def - Corporate tax refers to a direct tax levied by various jurisdictions on the profits made by companies or associations.

No change in corporate tax rates other than MAT

Minimum Alternate Tax (MAT) risen from 7.5% to 10%

Credit for MAT paid against normal tax payable can be availed for a period of 7 years

Security Transaction Tax rates increased by 25% across the board

Fringe Benefit Tax (FBT) provisions amended allowing marginal relief to tax payers

Dematerialization of TDS certificates deferred by 2 years

No more annual TDS and TCS returns

Rs. 10000 fine for quoting false TAN

Excise and Customs duty Excise duty Rs. 119000 Cr money expected to be earned in the financial year 2006-07 Over 100 excise rates in 1980s has been brought down to 3 Custom duty Peak custom duty on manufactured goods reduced to 12.5% from 15% 70 to 80 end use based customs duty has been exempted. (2005-06) (Rs. Crs) Def - Excise taxes : governmental levies on specific goods produced and consumed inside a country. Customs duties : Tariffs or taxes payable on merchandise imported or exported from one country to another.

Excise duty

Rs. 119000 Cr money expected to be earned in the financial year 2006-07

Over 100 excise rates in 1980s has been brought down to 3

Custom duty

Peak custom duty on manufactured goods reduced to 12.5% from 15%

70 to 80 end use based customs duty has been exempted.

CVD Peak Custom duty has been cut from 15% to 12.5%, but this 2.5% reduction is more than offset by 4% countervailing duty (CVD). Imposition of CVD has another implication for manufacturers who pay excise duty, it is a creditable input tax Last year CVD was levied only on IT goods but this year it has been levied on other manufactured goods . Def - Countervailing duties are a means to restrict international trade in cases where imports are subsidized by a foreign country and hurt domestic producers. According to WTO rules, a country can launch its own investigation and decide to charge extra duties. Since countries can rule domestically whether domestic industries are in danger and whether foreign countries subsidize the products, the institutional process surrounding the investigation and determinations has significant impacts beyond the countervailing duties.

Peak Custom duty has been cut from 15% to 12.5%, but this 2.5% reduction is more than offset by 4% countervailing duty (CVD).

Imposition of CVD has another implication for manufacturers who pay excise duty, it is a creditable input tax

Last year CVD was levied only on IT goods but this year it has been levied on other manufactured goods .

VAT/CENVAT The standard value added tax rate in India is12.5%. Cenvat rate of 16% was introduced five years ago with the intention of a single rate of excise duty for the future (%) (4%-9%) VAT Rate of different countries Def - value-added tax (VAT), levy imposed on business at all levels of the manufacture and production of a good or service and based on the increase in price, or value, provided by each level.

The standard value added tax rate in India is12.5%.

Cenvat rate of 16% was introduced five years ago with the intention of a single rate of excise duty for the future

MANUFATURING SECTOR HEAVY INDUSTRY INFRASTUCTURE TEXTILE INDUSTRY FOOD PROCESSING SMALL & MEDIUM SCALE INDUSTRY INFORMATION TECHNOLGY PETROLEUM INDUSTRY AUTOMOBILE INDUSTRY

Heavy Industry Iron and Steel industry- Demand for steel is likely to go up following the budget proposals. Custom duty On alloy steel reduced from 10% to 7.5% Of 5% import duty restored on Iron and steel melting scrap Special CVD of 4% has been levied on the industry Customs duty cut on iron ore cut from 5% to 2% Slash in import duties on refractories and its inputs . Non-ferrous metals - Custom duty on aluminum, copper and zinc reduced from 10% to 7.5% Special CVD of 4% has been levied on the industry Cement industry- - Increased emphasis on infrastructure is expected to boost cement demand - Customs and Excise duties on cement remained unchanged Million tones Million tones

Iron and Steel industry-

Demand for steel is likely to go up following the budget proposals.

Custom duty

On alloy steel reduced from 10% to 7.5%

Of 5% import duty restored on Iron and steel melting scrap

Special CVD of 4% has been levied on the industry

Customs duty cut on iron ore cut from 5% to 2%

Slash in import duties on refractories and its inputs .

Non-ferrous metals -

Custom duty on aluminum, copper and zinc reduced from 10% to 7.5%

Special CVD of 4% has been levied on the industry

Cement industry-

- Increased emphasis on infrastructure is expected to boost cement demand

- Customs and Excise duties on cement remained unchanged

Mining Industry Custom duty cuts from 5% to 2% on mineral ores and concentrates from 15% to 2% on mineral products except cement, marble, granite and asbestos Coal 45 coal blocks have been allocated for captive consumption to power, steel and cement industries Growth rate of the industry Lakh tons (%)

Custom duty cuts

from 5% to 2% on mineral ores and concentrates

from 15% to 2% on mineral products except cement, marble, granite and asbestos

Coal

45 coal blocks have been allocated for captive consumption to power, steel and cement industries

Chemical Industry EXCISE DUTY CUTS Inorganic chemical : from 15% to 10% Catalyst : 10% to 7.5% Basic cyclic and acyclic hydrocarbons : fixed at 5% CUSTOM DUTY Organic chemicals : from 10% to 5% Inorganic chemical : from 15% to 10% Excise duty Customs duty

EXCISE DUTY CUTS

Inorganic chemical : from 15% to 10%

Catalyst : 10% to 7.5%

Basic cyclic and acyclic hydrocarbons : fixed at 5%

CUSTOM DUTY

Organic chemicals : from 10% to 5%

Inorganic chemical : from 15% to 10%

Information Technology Excise duty 12% re-imposed on computers, thus hiking PC prices 16% on Set Top box From 15% to 5% on MP3 players 12% custom duty has been removed and Accelerate the speed of urban renewal and provide incentives for creation of such urban facilities. Emphasize quality higher education to ensure steady supply of the most important raw material for this sector, trained manpower. Synergies IT application in governance. Review the definition of export turnover in the context of the IT sector. Price of computers increased by 3% Review foreign tax credit policy and make it simpler and faster. Discourage taxation of parent companies abroad.

Excise duty

12% re-imposed on computers, thus hiking PC prices

16% on Set Top box

From 15% to 5% on MP3 players

12% custom duty has been removed and Accelerate the speed of urban renewal and provide incentives for creation of such urban facilities.

Emphasize quality higher education to ensure steady supply of the most important raw material for this sector, trained manpower.

Synergies IT application in governance.

Review the definition of export turnover in the context of the IT sector.

Price of computers increased by 3%

Review foreign tax credit policy and make it simpler and faster.

Discourage taxation of parent companies abroad.

Small & Medium Scale Industry The small scale development bill and credit policies augmented textile production in India. Consulting the share holders and the advisory committee of ministry of Small Scale Industries, FM considered de-reserving 180 items Thus FDI will be encouraged which will lead towards up scaling of this sector and associated technological progress.

The small scale development bill and credit policies augmented textile production in India.

Consulting the share holders and the advisory committee of ministry of Small Scale Industries, FM considered de-reserving 180 items

Thus FDI will be encouraged which will lead towards up scaling of this sector and associated technological progress.

Tea Industry Rs. 100 Cr. Corpus for Special purpose tea fund Custom’s duty on packaging machinery falls from 15% to 5% resulting in value addition in the tea industries proposed 12% Service tax on auctioneering . This will increase cost since buying through auction channel will decrease

Rs. 100 Cr. Corpus for Special purpose tea fund

Custom’s duty on packaging machinery falls from 15% to 5% resulting in value addition in the tea industries

proposed 12% Service tax on auctioneering . This will increase cost since buying through auction channel will decrease

Jewellery Industry The local tax regime is transformed for inducing NRI investment in the gem and jewelry sector Duties eliminated from export oriented units and domestic tariff areas CVD implications 1% for articles of jewelry gold, silver, rough and cut diamond, etc. not included in the CVD net.

The local tax regime is transformed for inducing NRI investment in the gem and jewelry sector

Duties eliminated from export oriented units and domestic tariff areas

CVD implications

1% for articles of jewelry

gold, silver, rough and cut diamond, etc. not included in the CVD net.

Pharmaceutical Industry CUSTOM DUTY CUTS 5% on 10 anti-AIDS, 14 anti-cancers and 4 life saving drugs FBT likely to reduce the tax burden on the pharma companies Major concerns not addressed Rationalization of excise duty which is 16% sops for R & D, which is 150% deduction on expenditure, hasn’t been extended up to 2017

CUSTOM DUTY CUTS

5% on 10 anti-AIDS, 14 anti-cancers and 4 life saving drugs

FBT likely to reduce the tax burden on the pharma companies

Major concerns not addressed

Rationalization of excise duty which is 16%

sops for R & D, which is 150% deduction on expenditure, hasn’t been extended up to 2017

Textile Industry There has been an encouraging response to Technology Up gradation Fund (TUF) Scheme. The finance minister has allocated a sum of 535 crore for FY07. An extension of 25 textile parks have been proposed under the Scheme for Integrated Textile Parks (SITP). Out of them 7 are sectioned and 10 are identified 189 cr. has been proposed for development of the parks. Textile industry wanted labour reforms but the budget was completely silent on it. The last 2 budgets have created an enabling environment for growth of textile industry

There has been an encouraging response to Technology Up gradation Fund (TUF) Scheme.

The finance minister has allocated a sum of 535 crore for FY07.

An extension of 25 textile parks have been proposed under the Scheme for Integrated Textile Parks (SITP). Out of them 7 are sectioned and 10 are identified

189 cr. has been proposed for development of the parks.

Textile industry wanted labour reforms but the budget was completely silent on it.

Cotton Industry The excise duty on cotton spinners at either 4% or 0% has been maintained. TUFS provides 5% interest subsidy for both greenfield and brownfield cotton-spinning projects. Jute Industry National Jute Board Bill approved Jute technology mission in 2006-07 to harness the potential of the golden fibre . Man-made Fibers Customs duty on man made fibers down to 8% from 16% Synthetic goods cheaper by 8% to 10%

The excise duty on cotton spinners at either 4% or 0% has been maintained.

TUFS provides 5% interest subsidy for both greenfield and brownfield cotton-spinning projects.

National Jute Board Bill approved

Jute technology mission in 2006-07 to harness the potential of the golden fibre .

Customs duty on man made fibers down to 8% from 16%

Synthetic goods cheaper by 8% to 10%

Petroleum Industry Customs duties on crude oil halved to 5% from 10%. Customs duties on petrol and diesel reduced to 10% from 20%. Customs and excise duties on LPG and kerosene eliminated. Customs duties on all other petroleum products other than above reduced to 10% from 20%. Excise duties on petrol and diesel fixed as a combination of ad-valorem and specific duties. Cess on petrol and diesel increased by 50 paise per litre Rs. 22000 Cr are expected to be invested in the petroleum sector next year Gross production in petroleum industries Million Tones Million Tones

Customs duties on crude oil halved to 5% from 10%.

Customs duties on petrol and diesel reduced to 10% from 20%.

Customs and excise duties on LPG and kerosene eliminated.

Customs duties on all other petroleum products other than above reduced to 10% from 20%.

Excise duties on petrol and diesel fixed as a combination of ad-valorem and specific duties.

Cess on petrol and diesel increased by 50 paise per litre

Rs. 22000 Cr are expected to be invested in the petroleum sector next year

Petrochemical Industry Import duties on polyester and intermediate such as DMT, PTA, MEG have been brought down to 10% from 15% Excise duty cuts on polyesters from 16% to 8%

Import duties on polyester and intermediate such as DMT, PTA, MEG have been brought down to 10% from 15%

Excise duty cuts on polyesters from 16% to 8%

Automobiles Industry Excise duty has been reduced from 24% to 16% on small cars (up to 1200cc). An 4% CVD has been levied on imported models . SIAM has proposed the F.M. to cut the excise duty across the board. Small car prices reduced by Rs. 13000 to Rs. 25000 Automobiles sales in India 2005-06

Excise duty has been reduced from 24% to 16% on small cars (up to 1200cc).

An 4% CVD has been levied on imported models .

SIAM has proposed the F.M. to cut the excise duty across the board.

Small car prices reduced by Rs. 13000 to Rs. 25000

Food Processing Industry Excise duty Exempted from Pasta, condense milk, fish and poultry, preparations of meat and ice-cream slashed 16% to 8% on ready-to-eat packaged food Reduced to 16% from 24% for soft drinks Levied @ 16% on unbranded protein concentrates, hiking prices of health drinks Custom duty reduced on packaging machinery. Allocated Rs. 1000 Cr for short term loans through NABARD for agro-processing, infrastructure and market development. AMUL : slashed ice-cream and condense milk prices by 5%

Excise duty

Exempted from Pasta, condense milk, fish and poultry, preparations of meat and ice-cream

slashed 16% to 8% on ready-to-eat packaged food

Reduced to 16% from 24% for soft drinks

Levied @ 16% on unbranded protein concentrates, hiking prices of health drinks

Custom duty reduced on packaging machinery.

Allocated Rs. 1000 Cr for short term loans through NABARD for agro-processing, infrastructure and market development.

AMUL : slashed ice-cream and condense milk prices by 5%

Misc. Industries EDIBLE OIL Custom duty Vanaspati and crude palm oil is made 80% Refined pamolien : 90% To protect the domestic sector 4% VAT imposed on palmolien. CIGARETTE 5% excise duty hike AERATED WATER Special excise duty of 8% CROCKERY & CERAMIC GOODS 16% excise duty imposed

EDIBLE OIL

Custom duty

Vanaspati and crude palm oil is made 80%

Refined pamolien : 90%

To protect the domestic sector

4% VAT imposed on palmolien.

CIGARETTE

5% excise duty hike

AERATED WATER

Special excise duty of 8%

CROCKERY & CERAMIC GOODS

16% excise duty imposed

Infrastructure Telecommunication More than 50 million rural connections will be rolled out in 3 years 1500cr. has been given to Universal services obligation fund for better connectivity. Power Shown a modest growth of 4.7% 82 projects to be constructed in the next 3 years offering better generation, transmition and distribution 33000 MW for public sector and 6500 MW for private sector will be added Rajiv Gandhi Grameen Vidyutikaran yojna implemented for electrification of 10000 villages in the current year Road transport Support of Rs. 9945 Cr. From Rs. 9320 Cr has been enhanced for completion of NHDP program Rs. 4618 Cr approved for North-East region out of which Rs. 550 has been enhanced Proposal for construction of 1000 Express way has been given Maritime development Rs.55804 Cr approved for NMDP program Certain exemptions has been withdrawn from the infrastructure sector namely benefits under section 10(23G) that provides tax breaks for financial institutions and banks to fund on infrastructure sector

Telecommunication

More than 50 million rural connections will be rolled out in 3 years

1500cr. has been given to Universal services obligation fund for better connectivity.

Power

Shown a modest growth of 4.7%

82 projects to be constructed in the next 3 years offering better generation, transmition and distribution

33000 MW for public sector and 6500 MW for private sector will be added

Rajiv Gandhi Grameen Vidyutikaran yojna implemented for electrification of 10000 villages in the current year

Road transport

Support of Rs. 9945 Cr. From Rs. 9320 Cr has been enhanced for completion of NHDP program

Rs. 4618 Cr approved for North-East region out of which Rs. 550 has been enhanced

Proposal for construction of 1000 Express way has been given

Maritime development

Rs.55804 Cr approved for NMDP program

Credits Members of HICKS GROUP Probal Majumder, Soham Gupta Ishita Das, Roop Roy Sujana Kabiraj, Abhigyan Mukherjee Debolina Basak, Uddipan Banerjee Amrita Ghosh, Riddisha Mukherjee Saptarshi Bhattacharya, Arpan Nandy Shreyoshi Mukherjee, Rai Mukherjee Uday Banerjee, Shalini Ghosh Special thanks to Teachers of economics department BNC. Information collected from: THE ECONOMIC TIMES, TIMES OF INDIA WWW.GOOGLE.COM , WWW.INDIABUDJET.COM WWW.ANSWERS.COM

Members of HICKS GROUP

Probal Majumder, Soham Gupta

Ishita Das, Roop Roy

Sujana Kabiraj, Abhigyan Mukherjee

Debolina Basak, Uddipan Banerjee

Amrita Ghosh, Riddisha Mukherjee

Saptarshi Bhattacharya, Arpan Nandy

Shreyoshi Mukherjee, Rai Mukherjee

Uday Banerjee, Shalini Ghosh

Special thanks to Teachers of economics department BNC.

Information collected from:

THE ECONOMIC TIMES, TIMES OF INDIA

WWW.GOOGLE.COM , WWW.INDIABUDJET.COM

WWW.ANSWERS.COM