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NEW DELHI, Nov. 22

THE Task Force on Indirect Taxes, appointed by the Finance Minister, Mr Jaswant Singh, today brushed aside the demands of the Federation of Indian Chambers of Commerce and Industry (FICCI) to go in for reduction in customs duty only after the removal of the disabilities faced by the domestic industry.

"The domestic industry will not be in a disadvantageous position against imports on account of our customs duty reduction proposals. After the implementation of State-level VAT and if the proposed customs duty changes are adhered to, the level of protection will only be higher for the domestic industry", Mr Gautam Ray, Finance Ministry official and a member of the Task Force Chaired by Dr Vijay Kelkar, said at an interactive session organised by FICCI.

The FICCI President, Mr R.S. Lodha, said that any further reduction in customs duty without proper study of the cost aspects of different industrial sectors would render Indian products uncompetitive in the domestic markets vis-a-vis imported goods. "Before reducing the peak tariff, there is need to remove disabilities in the case of domestic industry. The disabilities in the case of domestic industry are labour, infrastructure, transaction cost, power, interest, taxes and duties and small scale reservation", he said.

Mr Lodha highlighted that the task force had recommended a 5 per cent cut in peak customs duty from the current level of 30 per cent.

He expressed concern over what he considered as lower protection level for domestic refineries. "There is a general feeling that if the tariff recommendations are accepted, the protection level for Indian refineries would be as low as 3 per cent", he said. The members, however, said that the proposed regime would only give a higher rate of effective protection for the domestic refineries and that the apprehensions of FICCI over this matter were misplaced. "You should always look at the effective rate of protection and not go by the nominal rate of protection. The effective rate of protection would be much higher for domestic refineries when the State-level VAT comes into force", a member said.

The Task Force on Indirect Taxes will meet the Empowered Committee of State Finance Ministers on Value Added Tax (VAT) on November 28 to sort out certain issues on the proposed VAT regime. On the demand of the food processing industry for the exclusion of processed foods from the ambit of the excise net, the task force members pointed out that an excise duty on the processed food items would help the industry in competing against imports.

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