New Delhi: The Economic Survey on Friday proposed to end the exemptions to countervailing duty (CVD) to protect local manufacturers and push “Make -in -India”. “Eliminating all the exemptions for the countervailing duty (CVD) will eliminate the negative protection facing Indian manufacturers, and help the ‘‘Make in India’’ initiative, without violating India’s international obligations,” said the Economic Survey 2014-15.
It said that there is one response that would help manufacturing and the “Make-in-India” initiative without being as difficult as improving the business environment, and as controversial and expensive as the industrial policy or protectionist response: eliminating the exemptions in the countervailing duties (CVD) and special additional duties (SAD) levied on imports. “It is a well-accepted proposition in tax theory that achieving neutrality of incentives between domestic production and imports requires that all domestic indirect taxes also be levied on imports. So, if a country levies VAT, or excise or GST on domestic sales or production, it should also be levied on imp-orts,” said the survey. It also noted that India’s current indirect tax system, however, acts sometimes to favour foreign production over domestically produced goods.
It said that the CVD, which is levied to offset the excise duty imposed on domestic producers, is not applied on a whole range of imports. “The effective rate of excise on domestically-produced non-oil goods is about nine per cent. The effective collection rate of CVDs should theoretically be the same but is in actual fact only about six per cent,” said the survey.
The report pointed out that this difference also entails a fiscal cost of Rs 40,000 crore to the government.
