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III. SALES TAX/ VAT

The total incidence of Indirect Taxes on many chemical products produced in India including Excise, Sales Tax etc. is often as high as 21.8% which is significantly higher than the incidence even in the other Asian countries. This should be brought down to the level of other Asian countries through reduction in both excise duty and sales tax.

The erstwhile Honorable Finance Minister had proposed in the Union budget 2006-07 that India should move towards a national level GST, with the Centre and States sharing the revenue. He had also proposed to set April 1, 2010 as the final date for introducing GST. This deadline needs to be adhered to if not advanced.

Given the hour of crisis, we request for abolition of CST with immediate effect.

IV. DIRECT TAXES

4.1 Corporate Tax Rates and Service Taxes:
Global Financial Meltdown is very similar in its manifestation to a Force Majeure situation on individual manufacturing units. In this hour of crisis, we request the government to:

• Reduce Corporate Tax rate to 25%
• Reduce Service Tax by 5%

4.2 Surcharge:
Surcharge may be abolished.

4.3 Fringe Benefit tax to be withdrawn.
To help companies make more contribution towards employee welfare, ICC proposes removal of Tax on Fringe Benefits.

4.4 Incentives Like benefits for Creating Investment Allowance Reserve:
The global recession has affected plans for investments and the sentiments are very weak on capital investments. In order to bring back the economy into a growth mode, it is necessary that some incentives like benefits for creating Investment Allowance be re-introduced as a part of a stimulus package.

4.5 Tax exemption to EOU to be continued after 31/03/2010:
Tax exemption under section 10B of the Income Tax Act may be extended beyond 31/03/2010. SEZs have been granted Income Tax Exemption and benefits for a period of 15 years. EOU units are basically performing the same parameter required to achieve positive foreign exchange earning. Therefore, complete tax exemption under section 10B should also be extended to EOUs without any time time.

4.6 Rate of depreciation for Plant & Machinery:
The wear and tear of plant & machinery in the chemical industry are relative higher as compared to other industry. The depreciation allowed for the purpose of income tax was earlier @ 25% which was brought down 15%. It is proposed that same may be restored to 25%

4.7 Investment in energy efficient & green technology:
In order to encourage adoption of more energy efficient and green technology like replacing mercury cell with membrane technology in chlor-alkali industry, water recycling plants etc. 100% deprecation may be allowed.

4.8 Initiatives to address Climate Change:
To encourage initiatives in reduction of carbon emission by the chemical sector India industry can play a vital role. Trading in carbon credit is an emerging global initiatives and it is proposed that income accruing to an Indian company by selling Carbon Emission Reduction Credit (CER) may be exempt from income tax.

4.9 Dividend Distribution Tax:
To encourage investment Dividend Distribution Tax may be removed.

4.10 Others:
Deduction u/s 80HHC for export of Goods is to be re-introduced. Surcharge to be abolished.

V. Technology up gradation and R & D:

For Indian chemical industry to become globally competitive there has to be more emphasis on innovation and R&D. Establishment of R&D facilities is very capital intensive. Though India has acquired significant position in Specialty Chemicals sector especially in Pharmaceuticals, Fine Chemicals and Agrochemicals, industry's expenditure on R&D is hardly 1% of their turnover. This is very low compared to other major countries where it ranges from 4% to 8% depending on specific sectors. To be globally competitive, Indian chemical industry has to invest in R&D and continuously develop new products and new technologies. This will require considerable investment. Indian chemical industry therefore needs financial incentives to pursue the course of innovation in the form of:

• Soft loans at reduced interest rates with longer moratorium period and longer repayment period.
• Zero Import Duty on capital goods imports for R&D activities
• To encourage R&D, Government should consider extending 150% of expenditure in R&D for income tax exemption beyond 2012 by additional 10 Yrs.

5.1 Income Tax benefit for Commercialization of R&D:
Companies spending on R&D get benefit under Section 35. However, no benefits are available upon launching of the product. In order to promote innovation government may allow exemption accruing out of new product launch from payment of income tax for a period of 3 Yrs.

5.2 Technology up-gradation fund (TUF)
Chemical industry needs to continuously upgrade technology to stay competitive in the global environment. Government may create Technology up-gradation fund (TUF) which can be used to support technology up-gradation initiatives in SME sector.

VI. Free Trade Agreements:
ICC strongly recommends that in the current global meltdown, government should not commit to participate in any of the FTA deliberations in view of the following factors:

• India's general experience on FTAs so far had not been encouraging. An analysis of our FTA with Thailand has clearly demonstrated that the same has benefited Thailand disproportionately more than trade flow from India.
• Indian Import Duty on most of the chemicals in India is already very low. In some of the product categories, it is one of the lowest and lower even in comparison to developed countries that enjoy substantial technology, financing and infrastructural cost advantages as compared to India. Further reduction will result in imports flooding Indian market to the detriment of the local industry.
• Over the years, Import Duty has been reduced significantly, while similar adjustments have not been made in the cost of inputs of the Indian chemical industry.
• Due to the impact of Economic Meltdown in their own countries, members of the Trading Blocs are eyeing the large Indian market to sell their goods at low prices.
• In the recent past, industry is experiencing surge in imports not only from countries like China, Taiwan, Korea but also from Brazil, Mexico and others from Latin America.

Our Submission:

• Defer signing and implementation of all FTAs negotiated or finalized or in pipeline, especially with ASEAN, Thailand, Korea and Gulf Countries for at least 1 year.
• If possible, put on hold enforcement of all FTAs already signed since 2006 at least for 6 months.

VIII. SUMMARY OF SUBMISSION:
Sir, in conclusion we would like to submit the following-

1. Import duty on following products may be increased to the peak level of 10%
   - All chemicals under chapter 28, 29, 32 & 38 which are currently @ 7.5% (exept for chemicals specified in para 1.1)
   - All polymers under chapter 39 which are currently @ 5%
2. Import duty on fiber intermediate like PTA & MEG may be increased from 5% to 7.5%
3. Import duty on basic inputs may be brought down to 0%
   - Denatured Ethyl alcohol
   - Cracker feedstock (Naphtha, Ethane, Propane)
   - Fuel & Energy products (Fuel oil, Naphtha, Fuel oil, LSHS, Coal, LNG, LPG)
   - Capital goods for captive power plant and PV cell-Solar wafers
   - Catalyst
   - Rock Phosphate
   - Import of capital goods for PV cell(Solar wafers and R&D activity
4. Excise duty for following products may be reduced
   - Molasses for Denatured Ethyl alcohol to 8% or Rs.375/Ton whichever is lower
   - Naphtha for cracker feed stock to 8%
   - Naphtha, Fuel oil for captive power generator to 8%
5. Direct Tax
   - Corporate tax may be reduced to 25% and service tax to 5%.
   - Depreciation for Plant & Machinery may be increased from 15% to 25%
   - Dividend Distribution Tax may be removed
   - Fringe benefit tax (FBT) may be withdrawn
   - Tax exemption to EOU to be continued after 31/03/2010.
6. Creation of Technology up-gradation fund.

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