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Indian Government Unveils Stimulus Package

by Lorys Charalambous, Tax-News.com, Cyprus

10 December 2008


The Indian government at the weekend unveiled a plan designed to stimulate the country's economy, comprising tax and other measures.

In addition to various measures taken to increase liquidity within the banking sector, the government announced that:

"As an immediate measure to encourage additional spending, an across-the-board cut of 4% in the ad valorem Excise Tax rate will be effected for the balance part of the current financial year on all products other than petroleum and those where the current rate is less than 4%."

In order to bolster the export sector, pre- and post-shipment export credit for labour intensive exports, such as textiles (including handlooms, carpets and handicrafts), leather, gems and jewellery, marine products will benefit from an interest subvention of 2% until the end of March 2009, subject to a minimum rate of interest of 7% per annum.

Additional funds will be provided to ensure full refund of Terminal Excise duty/CST, and an additional allocation for export incentive schemes will be made.

Measures to support the housing, medium, small and micro enterprises, and textile sectors were also unveiled at the weekend, and a large number of infrastructure projects are now being cleared for implementation in the Public Private Partnership scheme.

In a statement providing further details on the taxation elements of the stimulus package, the Ministry of Finance announced that:

"The three major ad valorem rates of Central Excise duty viz. 14%, 12% and 8% applicable to non-petroleum products have been reduced by 4 percentage points each. The revised rates will be 10%, 8% and 4% respectively."

"Cars, other than small cars, attract composite rates – that are a combination of specific and ad valorem rates. The rates applicable hitherto were ‘24% + INR15,000 (USD305)/-` per unit for cars of engine capacity 1500 cc to 1999 cc and ‘24% + Rs.20,000/-` per unit for cars of engine capacity of 2000 cc or more. The ad valorem component of these rates has been reduced from 24% to 20%."

"In the case of cement, which attracts either the ad valorem rate of 12% or specific rates (INR/metric tonne) depending upon the retail sale price, the specific rates have also been reduced in the same proportion as the ad valorem rate. Further, the concessional rates for cement produced by mini-cement plants have also been reduced proportionately. Bulk cement would now be chargeable to either 10% ad valorem or INR280/- per tonne, whichever is higher."

"The rate of duty on cotton textiles and textile articles has been reduced from 4% to nil. No change has been made in the excise duty rates on petroleum products, specific rated items and tobacco products."

With regard to service tax, the Finance Ministry explained that:

"Notification No.41/2007-Service Tax provides for refund of service tax paid by exporters on 18 taxable services attributable to export of goods. The benefit of such refund has now been extended to services provided by a clearing and forwarding agent to exporters also. In addition, the threshold limit of refund of service tax paid by exporters on foreign commission agent services has been enhanced from 2% of FOB value to 10% of FOB value of export goods."

The tax changes would all be effective immediately, the ministry concluded.


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