IICI NEWSLETTER March 2005
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e h INDO-ITALIANC hamber t of COMMERCE and INDUSTRY CONTENTS ewsletter N March 2005 The Union Budget 1 FDI in Construction Sector 3 Welcome… FDI Limit in Telecom Raised 3 ... to the first edition of our on-line newsletter, which will be sent to all our members by e-mail every month. It is closely linked to our new website, www.indiaitaly.com, and is intended to keep members abreast of the latest Italian Language Course 3 news of interest to Chamber members – more detailed accounts and articles of general interest will continue to be featured in our quarterly journal, Italian President Ciampi in Italian-Links. India 4 The Newsletter is also an excellent way of advertising your products and services, as it reaches an assured audience of like-minded business interests Italian Companies to – check out our very favourable rates. Strengthen Indian Presence6 Do let us know your views about the Newsletter: we would be very happy to have your opinions, suggestions and contributions. Roman Holiday for Indian Please write to us at: [email protected] Cinema 6 Spinning Magic 6 Italian Clothing Company Chooses India over China 6 Indian Share in Textile Global THE UNION BUDGET 2005–2006 Market in Danger 7 P C Chidambaram, Finance Minister of India, presented the first full Videocon to buy Italian tubes Union Budget of the National Democratic Alliance (NDA) Government on 28 February. An interim budget was presented in July last year, after the unit 7 election of the new government. Overall the budget fell in with expectations, given the role of left wing parties in the coalition government, fiscal restraints India best location for and the Government's commitment to growth. offshoring 8 The Budget aims for a growth rate of 7%, keeping inflation at 4.55%. Growth will be driven by corporate investment, along with improvement in foreign New Members 9 direct investment (FDI) inflows, supportive policies, a revival in the rural sector and export expansion helped by the removal of trade barriers – principally textile quotas. Interest rates are also likely to be kept in check, given the low Singapore Convention 9 forecast for inflation. Fiscal deficit, however, is still high, targeted at – 4.4% of GDP and the high public debt that this reflects will act as a deterrent for higher credit ratings for India. Business Enquiries – India 10 In general, the Budget focuses on agriculture and rural development, employment generation in the rural, textiles, SME and irrigation sectors and infrastructure. Corporate tax is reduced from 35% to 30%, with a surcharge of 10% that translates into a 3% lower tax burden for corporates. This should result in better cash flow and greater funds for investments. Customs duty is The Indo-Italian Chamber of Commerce & Industry reduced from 20% to 15%, while duty on crude oil imports is down from 502 Bengal Chemicals Compound 10% to 5%. Veer Savarkar Marg Prabhadevi continued on pg 2 Mumbai 400 0025 e h INDO-ITALIANC hamber t of COMMERCE and INDUSTRY A FEW HIGHLIGHTS l Customs duty on optical fibres/bundles and optical fibre cables reduced from 20% to 10% to benefit long distance l GDP growth: 7-8 % telephony service providers l Inflation: 4-5 % (5.01 % week ended 12 Febuary) l Focus on infrastructure and rural sectors Automobiles/Auto-ancillaries l Deficit: 4.3 % of GDP, down from 4.5 % in previous year l Reduction on excise duty of tyres from 24 % to 16 % l Forex reserves: $132.96 billion (Record foreign exchange l Excise duty of 16 % is imposed on road tractors of engine reserves can be used to fund domestic infrastructure capacity more than 1,800 cc projects.) l Tractor manufacturers will benefit from the additional 100,000 l No increase in FDI limits, but pension funds, retail and mining hectares to be brought under irrigation will be reviewed. l Hike in excise duty of steel from 12 % to 16 % l No target for sales of stakes in government firms, unlike l Customs duty on second-hand cars and motorcycles reduced previous year from 105 % to 100 %. Duty on specified parts of battery l Defence spending: 830.00 billion rupees operated road vehicles reduced from 20 % to 10 % l Rs 93.2 billion for highways l Customs duty on lead cut from 15 % to 5 %, on articles of lead Service tax remains at 10 %; more services to be taxed l from 20 % to 10 % and on battery separators from 20 % to 5 %. l Rs 11 billion to expand electricity in rural areas l Reduction in customs duty on petrol and diesel from 15 % to l Emphasis on investment in airports and tourism l Peak customs duty on non-farm products cut to 15% 10 %: however, Re 0.5 increase in cess on petrol and diesel from 20% from Re 1.5 to Rs 2 per litre in VAT will have a positive impact l VAT throughout India from April 1 on the automobile sector. l Corporate tax down by about 3% l Lowering of the corporate tax rate to 30 % (+ 10 % surcharge) l Securities transaction tax increased to 0.02 % from 0.015 % will mostly be offset by reduction in depreciation rates from 25 l Customs duty on crude oil cut to 5 % from 10 %. No duty on % to 15 % for plant and machinery. cooking gas and kerosene. l Duty on petrol and diesel cut to 10 % from 20 % and 15 % Consumer Durables respectively. l Excise duty on air conditioners reduced from 24 % to 16 % l Personal income tax to apply from Rs 100,000 per year; 30 % l Lower import duty on CPT to benefit television manufacturers tax above Rs 250,000 FMCG sector l No change in small savings interest rate l Customs duty on certain machinery used in leather and l Mutual funds allowed to introduce gold exchange traded footwear industry reduced from 20 % to 5 %. Customs duty on funds. ethyl vinyl acetate, reduced from 20 % to 10 % l Additional excise duty on cigarettes ranging from Re 0.15 to SECTORAL SURVEY Re 0.30 per cigarette based on its length; surcharge of 10 % Pharmaceuticals on excise payable on pan masala, and specified tobacco The reduction in the corporate tax rate will have a positive l products impact for high tax paying pharma companies. l Removal of Additional Excise Duty of Re1 per kg on tea l Customs duty on certain specified machinery in pharma and l Customs duty on molasses reduced from 20% to 10%. biotechnology sector is reduced to 5 % Excise duty on molasses increased from Rs 500/ton to Weighted deduction of 150 % of expenditure on in-house R&D l Rs 1,000/ton facilities of companies engaged in biotechnology and l Cut in peak import duty to 15 % will reduce costs of raw pharmaceuticals industry extended to 31 March 2007 materials LAB, soda ash, etc l Deduction of 100% on profits of companies conducting l Excise duty on matches made by mechanised and semi- scientific R&D and approved by the Department of Scientific mechanised sectors, reduced from 16% to 12%. No duty on and Industrial Research hand made matches l Rs1.5 bn for R&D in pharma sector l Excise duty of 2% imposed on branded jewellery l Cut in peak import duty positive for paints industry which Textiles procures at import parity prices a large part of its raw materials. l Investment in textile sector to be increased from Rs 200 bn in FY05 to Rs 300 bn in FY06. The interest cost will be reduced. Capital goods l Capital subsidy scheme for textile sector l Increased investments in infrastructure to benefit engineering l Reduction in customs duty on import of textile machinery from companies 20% to 10%. customs duty on polyester, nylon, fabrics and l Thrust on rural electrification to benefit power ancillary garments reduced from 15 % to 10 % companies l Excise duty on polyester filament yarn (PFY) reduced from 24 % to 16 % l Excise duty on iron and steel hiked from 12 % to 16 % to have l Clustered development approach to the production and a negative impact on the margins of engineering companies marketing of handloom products; 20 clusters to be taken up in l Net effect in reduction of corporate tax is 33.7 % the first phase l Depreciation rate on plant and machinery reduced from 2 5% l Nearly 30 textile items dereserved to 15 %, negative for companies having major capex plans. Telecom Metals l A provision of Rs 12 bn towards fund for connectivity in l Thrust on infrastructure: building roads, ports, airports, rural and remote areas rails, etc, to benefit all steel companies l 1,687 subdivisions to get support for rural household l customs duty on aluminium, copper and zinc reduced from telephones 15% to 10 % l BSNL to provide public telephones in the next three l Excise duty on steel increased from 12 % to 16 % years to 66,822 revenue villages l Reduction in basic corporate income tax rate to 30 % should l Tax Holiday under section 80 IA extended benefit all steel companies. 2 e h INDO-ITALIANC hamber t of COMMERCE and INDUSTRY IT l Customs duty exemption on imports inputs required for ITALIAN LANGUAGE COURSE manufacturing computers but a CVD of 4 % levied on their Second Level – Mornings imports l IT software imports to be exempt from the proposed CVD of From: 26 April 2005 4 % For: 3 months l Reduction in basic corporate income tax rate to 30% will not At: Indo-Italian Chamaber of Commerce have any impact on software and hardware 502, Bengal Chemicals Compound V Savarkar Marg, Prabhadevi Oil and Gas Industry Mumbai - 400025 l Customs duty on crude oil reduced from 10% to 5% l Both customs duties and excise duties on LPG and SKO brought down to nil For more information, contact: [email protected] l Service tax being levied on pipeline services Tel: 2436 8186 x103 FDI IN CONSTRUCTION SECTOR In line with its strategy of introducing developed within three years of the first till now was capped at 49% but with certain reforms outside the Budget exercise, the parcel of land being handed over.