Finance Minister P. Chidambaram’s reply on the Finance Bill has disappointed commodity exchanges and the automobile industry. The Lok Sabha completed the Budget process by approving Finance Bill on Tuesday.
Chidambaram, while replying on the Finance Bill, did not bring in any amendments in the provision related to the Commodity Transaction Tax (CTT). Also, while the additional excise duty imposed on sports utility vehicles (SUVs) was not part of the Finance Bill, the auto industry and the nodal Ministry for the sector was expecting some relaxation.
The Finance Bill, 2013, proposed CTT on non-agro commodities such as gold, silver and crude oil among others. Sellers will now have to pay tax at the rate of 0.01 per cent (which means tax of Rs 10 for transaction value of Rs 1 lakh), similar to the Securities Transaction Tax (STT) on equity futures.
In his reply, Chidambaram re-confirmed that trading in commodity derivatives would no longer be considered a speculative transaction. It may be noted that in his Budget speech on February 28, he had said that trading in commodity derivatives would not be considered a ‘speculative transaction’ and CTT would be allowed as deduction if the income from such transaction formed part of business income.
The Budget had proposed an additional three per cent excise duty on SUVs. When asked about the Ministry of Heavy Industries and auto industry’s demand for relaxation, Chidambaram said, “I got a letter from one colleague, but I have explained to him why it is necessary to increase the excise duty on SUVs from 27 per cent to 30 per cent.”
The letter was written by Heavy Industries Minister Praful Patel.
The Finance Minister also clarified that it (addition three per cent duty) was a very small increase. “Ninety-eight per cent of SUVs run on diesel. Diesel is subsidised. So, by increasing the duty from 27 per cent to 30 per cent, we are only partially recovering diesel from the rich people who use SUVs,” he said.
Patel had requested that if imposing this additional duty was entirely unavoidable on account of revenue and the subsidised price of diesel, then there should be exemption from additional duty for all vehicles classified as SUVs that have a manufactured cost of up to Rs 10 lakh. However, the Finance Minister did not agree to fixing a threshold limit.
Reacting to the Finance Minister’s reply, a highly placed auto industry source said, “If the tax has not been pulled down for utility vehicles for the rural market (like Bolera and Trax), let him (FM) face the ire of the consumers.” The auto industry is already facing tough time as sales have declined.