The continuing rise of the rupee against the dollar has got exporters worried. But should the taxman, too, start thinking hard?
In a speech he gave in Washington, DC on Wednesday, finance minister P. Chidambaram reportedly said this: “It (the rupee) has challenged our exports and our tax revenue.”
Tax revenue? We can guess what the finance minister is worried about. The government is expected to collect about Rs98,000 crore of tax from importers this year. Tax is imposed on the rupee value of goods that come into the country. A strong rupee brings down the landed value of imports and hence tax collections.
But lower import prices will also be an incentive for Indians to substitute local goods with foreign ones, pushing up imports and the tax that will be collected on them by customs officers. In that case, domestic excise duties will suffer.
The fact that the finance minister has flagged this concern is significant.