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Business News/ Politics / Policy/  Govt looks to provide fillip to manufacturing, exports
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Govt looks to provide fillip to manufacturing, exports

Commerce ministry recommends that DDT, MAT on SEZ units be abolished, gold import duty be rationalized

The commerce ministry’s recommendations have brought some relief to units in the tax-free enclaves, developers and jewellery exporters. Photo: BloombergPremium
The commerce ministry’s recommendations have brought some relief to units in the tax-free enclaves, developers and jewellery exporters. Photo: Bloomberg

New Delhi: The commerce ministry has recommended abolishing the dividend distribution tax (DDT) and minimum alternative tax (MAT) levied on special economic zones (SEZs), and rationalization of duties on gold imports, providing a measure of relief to units in the tax-free enclaves, developers and jewellery exporters.

The measures, aimed at boosting manufacturing and exports and recommended to the finance ministry, may find a place in the first budget of the Bharatiya Janata Party-led government of Prime Minister Narendra Modi. Finance minister Arun Jaitley is to present the Union Budget in early July.

The ministry is also advocating rationalizing the 80:20 rule under which the Reserve Bank of India (RBI) allows nominated agencies to import gold on condition that 20% of the inward shipments will be exported, commerce secretary Rajeev Kher said.

The finance ministry raised gold import duty last year to 10% from 4% and RBI introduced stringent rules to curb overseas purchases of the precious metal that had been causing the current account deficit to widen, in turn putting pressure on the rupee.

In May, exports of gems and jewellery increased by a meagre 1.36% to $3.4 billion and gold imports fell by 72% to $2.2 billion.

“There is a clear perception that there is something that needs to be done. Clearly, if you are talking about duty, then it will happen in the budget, if it has to happen. And if somebody addresses that then around that time, the procedure will also be addressed (by RBI)," Kher said.

The commerce ministry had strongly recommended that DDT and MAT levied on SEZ units and developers be abolished, he said.

“There is a clear acknowledgement that SEZs are a tool of industrial development, manufacturing and exports. And recognizing that potential, we feel that the whole instrumentality of SEZ requires augmentation," the commerce secretary said.

When asked whether he expects the recommendation to be better addressed by the finance ministry given that commerce minister Nirmala Sitharaman is also the minister of state in the finance ministry, Kher said: “I am sure the government has thought about that angle."

The two ministries have been at loggerheads on taxation issues related to SEZs and gold, with the finance ministry on several occasions spurning such proposals by the commerce ministry.

The commerce minister this time has only to convince the finance minister, and civil servants in North Block will fall in line, said Ajay Sahai, director general and chief executive officer at the Federation of Indian Export Organisations.

Abolishing MAT and DDT on SEZs will send a positive signal to global investors, he said.

“India could have attracted many of the manufacturing units which relocated to Cambodia or Vietnam had we not imposed these taxes on SEZs. The government would send a strong signal that it believes in stability in economic policies and will not tinker with them once they are in place," he added.

Commerce minister Sitharaman tweeted on 2 June: “Was briefed on SEZs. Many challenges. Have to tackle them to boost investors’ sentiment especially in manufacturing."

India’s exports grew in double digits for the first time in seven months in May on the back of improved demand for engineering, petroleum and textile products, trade data for May show.

Merchandise exports grew 12.4% to $28 billion in May while goods imports contracted 11.4% to $39.2 billion, leaving a trade deficit of $11.2 billion, a 10-month high.

The trade data was encouraging, but it could be called a revival only if the trend continues for another month, Kher said. “The sectoral absolute numbers have began to acquire their natural levels," he said.

The trade data offered a surprise by signalling that the global trade cycle is strengthening even as the World Bank in its latest report trimmed its global growth forecast from 3.2% to 2.8% for 2014, said Shubhada Rao, chief economist at Yes Bank Ltd.

“As the unfavourable base kicks in July onwards, annual growth readings are expected to moderate. However, given the upside potential that the global growth recovery is likely to offer, sequential momentum would still be positive for Indian shipments," she added.

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Published: 11 Jun 2014, 11:29 PM IST
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