Budget 2001-2002

101. Sir, I now present my tax proposals, indirect taxes first.

102. In my earlier budgets, I have endeavoured to ensure a continuity of approach in framing my revenue proposals. The principles that have guided me have been the need for growth in revenues, simplification and rationalization of the tax regime, and effective tax compliance through measures, which are friendly for the honest taxpayer, and a deterrent to the evader. I have reduced the number of rates in both customs and excise duties, simplified procedures and introduced measures to improve tax compliance. I have given up my discretionary power to grant excise and customs duty exemptions in individual cases thus saving hundreds of crore of revenue for Government. The policy of penalties against tax evaders has also been made non-discretionary. With all these steps I have sought to put an end to a system that pressure groups or lobbies could influence. My attempt this year is to take this process to its logical conclusion.

103. In my last budget, I had introduced the rate of 16% as the rate of Central Value Added Tax (CENVAT). I had also rationalized the rates of special excise duty to three, namely, 8%, 16% and 24%. The single rate of CENVAT now contributes about 68% of the total excise revenues from ad valorem duties.

104. I now propose to reduce the three rates of special excise duty to a single rate of 16%. As a consequence, I propose to abolish the 8% special excise duty on the following items:

These items will now be charged to CENVAT only at the rate of 16%.

105. White cement and other special cements, yachts and pleasure boats, arms and ammunition for private use and articles of fur skins, will attract SED of 16% and a total duty of 32%.

106. The special excise duty on aerated soft drinks, soft drink concentrates supplied to vending machines, and motorcars will be reduced to 16%, thus putting an end to the rate of 24% special excise duty. These items also will now bear a total duty of 32%. There will be no change in respect of products, which already attract this rate of 32%.

107. There are a few items that currently attract CENVAT at half the rate, namely, 8%. All these items will henceforth be charged to the normal rate of 16% except cotton yarn including sewing thread, LPG, kerosene and diesel engines up to 10 HP, which I am leaving at 8% for the present in the larger public interest.

108. After these rationalization measures about 80% of the revenue in respect of ad valorem duties will come from the single rate of 16% and about 17% from the combined rate of 32%.  

109. India is the world’s second largest producer of fruits and vegetables. However, most of these are wasted in the absence of proper storage and processing facilities. Food-processing industry dealing in perishable fruits and vegetables needs special support. I, therefore, propose to exempt food preparations based on fruits and vegetables completely from excise duty. This will include a very wide range of products of common use like pickles, sauces, ketchup and juices, etc. This, along with the support I have given to creation of better storage facilities will give a fillip to the food processing industry and will go a long way in improving the rural economy of our country.

110. The Eleventh Finance Commission has recommended a special levy for the replenishment of the National Calamity Contingency Fund. As an ad hoc measure, this was provided for in the current year through a special surcharge on corporate taxes. I propose to establish this funding on a regular basis through a special surcharge of excise on a range of products the use of which should be discouraged on health grounds. I propose to levy a surcharge of 15% on cigarettes. The duty on biris would increase from Rs 6 to Rs 7 per thousand biris. The total duty on pan masala would be 55%/60%. Miscellaneous tobacco products like chewing tobacco would be charged to a total duty of 60%.