Particularly after a challenging year such as 2009, the annual budget offers the GoI an opportunity to set the course for solid, sustainable and inclusive growth of 10% or more. The European Business Group in India (EBGI) is a pan-Indian association of European industries of all sizes and sectors. Its objectives are to ensure a favourable environment for trade and business to flourish. This will benefit not only our members but cement the basis for competitiveness and economic development. The following are the EBGI’s views on some of the core sectors represented by the Group:Alcoholic Beverages:
GST: The Goods and service tax proposal currently excludes alcohol from its purview. The empowered committee had suggested alcohol should be excluded. The GST will enhance tax collections and will bring transparency in the business.
Basic Customs Duty: In terms of the WTO Doha discussions, the applied and bound rate on spirits and wines have been at 150% whereas the rates are much lower in the developing and developed countries, The high incidence of tax has resulted in grey market of premium spirits and wines. The country is negotiating FTA with Europe. ISWAI recommends that the Government should reduce basic customs duty to comparable level in the region, The Basic customs duty in China is 10%
Additional Customs Duty: The Government charges 4% additional customs duty on all imports. The total duty on spirits and wines comes to 11% as additional duty which is to be reimbursed to the importer. The process is cumbersome and the refunds are not available to the importers. The Government should scrap this provision so that the additional duty impact is withdrawn on imported beverages.
Civil Aviation:
India's aviation sector is a young dynamic but also much battered industry. GDP growth and the country's continued integration into the global economy are highly dependent on extensive air connectivity underpinned by a strong airport infrastructure on the ground and financially healthy airlines. Fixing the highly diverging aviation turbine fuel taxes by making it a "declared good" would ensure a uniform 4% tax across India. 100% unrestricted FDI in domestic airlines should be allowed to ensure the viability of the sector and the emergence of strong carriers. Investments to the tune of USD 30 bn over the next decade will be needed. Access to bank credits and enhanced credit ratings would be facilitated by the granting of "infrastructure status" to airport companies. Finally promoting the investment in roads, rail, air and sea connectivity as a symbiotic and integrated network through targeted fiscal and policy measures will not only lead to better infrastructure but provide India with the competitive edge it needs to compete in the non-service industries.
Defence:
The Defence sector is only partially open to foreign investment. FDI in the sector is restricted to 26%. Given the significant technological and systems expertise European companies can contribute to strengthening India's defence forces and national security. The EBG therefore promotes the opening up of the sector allow 74% FDI. In addition defence procurement faces a 30% offset requirement. An offset obligation of 30% for a maximum 26% stake in a JV by a foreign partner contributing potentially billions of dollars worth of proprietary technology to India is a clear disincentive for the formation of meaningful and mutually beneficial defence partnerships.
Energy:
India’s energy requirement is enormous and to sustain GDP growth energy demand will continue to grow by more than 5% p.a.
More than 70% of our primary energy requirement is met through import while the energy and peak shortage are continuously hovering at more than 10%. The Government at one hand is talking about a free market regime and has enacted the Electricity Act 2003 yet there are interferences at every step. The issue over discovered oil & gas pricing mechanism has prevented most of the large international players to avoid the recent E&P bid round. Similarly there are hardly any international players in the power sector development due to the plethora of permits by state and central governments. Pricing of energy and its sustainability is another issue which makes international players nervous to enter the Indian energy market. The target to add 78 GW by 2012 has already fallen short. India needs to attract foreign players in the energy sector as the task is enormous for Indian government owned and private companies.
Health Care:
One of the important areas which need urgent attention is Medical Devices and Diagnostics.
The Custom duty slabs on these products adhere to GATT and TRIPS limits. However, special additional duties and counter veiling duties are also imposed on these products which keep the overall tariffs on imported goods much higher than that in the ASEAN region.
Now that we have signed an FTA with ASEAN countries, goods from these countries have started trickling in because of the cost advantage that they are now enjoying. To nip the problem in the bud, the custom duties should be reduced otherwise smuggled goods risk becoming a health hazard as they are not backed up by sales force nor by service or quality guarantees.
The high registration fees which have been kept for registering medical devices and diagnostics of 1000 $ per family is itself a trade barrier.
Services:
With the Union Budget barely a month away, various industry bodies see this as an opportunity to draw the Finance Minister’s attention to their sectors and share their concerns. The Sugar Sector is highlighting partial decontrolling, productivity enhancement & Tax exemptions. FMCG is focusing on rapid implementation of GST and control in prices of commodities especially with rural areas being the growth drivers. The rapidly growing Security industry employing more than 5.5 million is facing trials and tribulations with its wages and there is an insistent need for standardization. Further, there is a strong desire for better infrastructure facilities in terms of road connectivity, warehousing facilities and cold storage with an all important need to eliminate wastages.
The companies also want the government to lower corporate taxes and personal income taxes and remove the ever agonizing multiple taxation. This would leave a little extra money in consumers' pockets thereby accelerating growth in sales.
In order to be effective, the forthcoming budget, apart from other aspects, has to be an important link between the past and the future and must, therefore, address, apart from income and expenditure accounts and related marginal issues, the long-run objectives and issues of economic and social importance for the country as a whole.
Telecoms:
Though India is one of the fastest growing telecoms markets in the world, its success is limited only to retail mobile telephony. In the data, Broadband and Bandwidth services as well as enterprise segment, the situation is far from satisfactory. The telecom sector in India is the highest taxed segment touching up to 30% of gross revenue.
Therefore some facilitating budgetary measures are required to stimulate growth in various segments of ICT including:
1. Avoidance of Double Taxation on Bandwidth Providers:
The bandwidth providers are mainly resellers of this service after procurement from incumbent operators. In the current regime both these parties have to pay a revenue share to the Govt. as licence fee which escalates the cost because of double taxation. Therefore there is a need to allow pass through for the costs paid to the original provider of bandwidths.
2. Reduction in USO Levy:
Currently each telecom operator contributes 5% of revenues towards USO levy, which is supposed to be used for development of rural telecom. This fund has swelled to Rs. 25,000 Crores but only around Rs. 10,000 Crores have been spent with Rs. 15,000 Crores remaining unutilised. A moratorium on this collection should be called until the fund is depleted. In the interim the levy should be reduced to a marginal level (1%) from its present level of 5%.
3. TDS and Service Tax on Interconnection Charges:
TDS and Service tax should not be applicable on interconnection charges paid by companies and necessary clarification should be issued on this matter.
4. Extension of Sunset clause – Section 10A
It is proposed to amend section 10A to extend the tax benefit at least for another 3 years. This extension is required since as per the existing Special Economic Zone (SEZ) policy under the direct tax provisions no tax benefits have been envisaged when an existing Section 10A company migrates its operations to Section 10AA (SEZ) environment. As all existing companies, especially MNC’s have had invested enormous capital in the infrastructure to run operations under section 10A, migration to Section 10AA should not be tax detrimental to these MNC’s.
EBGI’s Sector Committees have contributed to this article.
Prabha Nair
Secretary General
European Business Group in India
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