Inverted Duty Structure May Be Addressed in Budget

New Delhi: To boost manufacturing as part of the 'Make in India' campaign, Finance Minister Arun Jaitley is likely to address in the forthcoming Budget the issue of inverted duty structure, especially in sectors such as auto, electronics and pharmaceuticals.

Inverted duty structure refers to taxation of inputs at higher rates than finished products which results in building up of credits and cascading costs.

Industry has been demanding that government should remove the anomalies with regard to taxation of raw material and other inputs.

According to industry sources, the minister should consider lowering Special Additional Duty (SAD) on imported raw material to 2 per cent from 4 per cent and bring down customs duty on various inputs to 5 per cent from 10 per cent.

Sectors including auto component, pharma, chemicals and electronics could be given a relook in Budget to be unveiled on February 28.

"Correcting the Inverted Duty Structure is the most important measure that is required to incentivize domestic manufacturing which is being promoted by the government as part of its Make In India campaign," said Pratik Jain, partner-indirect tax at KPMG.

The Commerce Ministry too in its pre-Budget suggestion pitched for a rectification of the inverted duty structure in crude napthalene.

In his previous Budget, Mr Jaitley had initiated steps to deal with the problem of inverted duty structure to give a fillip to domestic manufacturing.

Referring to the issue being faced by the auto sector, CII in its pre-Budget memorandum to the government said while the excise duty on commercial vehicles is 8 per cent, the inputs used in their manufacture are taxed at 12 per cent resulting in an accumulation of CENVAT credit.

"This has also affected the financial viability of the manufacturers who have set up facilities in the States of Uttrakhand and Himachal Pradesh to avail areas based excise exemption," the industry body said.

Rectification of inverted duty structure is also necessary to deal with the problem of cheaper imports from the countries with whom India had signed Free Trade Agreements.

Expressing similar views, Deloitte-India senior director Saloni Roy said, "In order to promote domestic manufacturing, it is expected that steps would be undertaken to correct the inverted duty structure which exists for certain products."

'Make in India' is a programme of the government which aims at increasing the share of domestic manufacturing in India's economic growth and create jobs.

During the April-December period, the manufacturing sector saw an output growth of 1.2 per cent, compared to a contraction 0.4 per cent in the year-ago period.