Points Raised by FIEO President for the Union Budget 2021-22

[FIEO/PUB/PR/35/2020-21 dated December 19, 2020]

1. Trade:

Overseas marketing is a big challenge for exporters as it entails a very high cost.

(a) We need to bring “Double Tax Deduction Scheme for Internationalization s” to allow exporters s to deduct against their taxable income, twice the qualifying expenses incurred for approved overseas activities including market preparation, market exploration, market promotion and market presence. A ceiling of USD 5,00,000 may be put under the Scheme so that the investment and tax deduction are limited.

(b) The marketing support under Market Access Initiative of the Ministry of Commerce is very small. We should create an Export Development Fund with a corpus of 0.5% of country’s exports for helping the MSME.

Income Tax:

2. Tax Deductions on Product Development &R&D:

Section 35(2AB) of Income Tax Act may be relooked into to so as to provide tax deduction not only on R&D but also on product development as product development is key in exports and should be encouraged. The tax deduction on R&D expenditure which has come down from 200% to 100% now may be restored to its original position as R&D investment in India is extremely low ( <1 % of GDP) and most of the R&D is being done at the behest of the Government or in sectors like pharma where it is Hobson’s choice.

3. Income Tax Rate Reduction for Non-Corporates :

The industry has welcomed reduction in corporate tax to 15% for new investors and 25% to existing investors. However, this has created wide spread disparity with non-corporate MSME who are subject to higher taxation of 35%. To encourage MSME units to further expand and create new opportunities, proprietorship firms/partnership firms and LLPs both new and old may also be given the benefit of reduced income tax so as to bring them at par with corporate bodies.

4. Removal of anomaly in respect of Leave Encashment for Non-Government Employees

Section 10 (10AA (i) of the Income Tax Act provides complete exemption from Income Tax to Central Government or State Government employees on any amount received as cash equivalent of leave salary in respect of earned leave at his credit at the time of retirement/superannuation. However, Section 10 (10AA (ii) provides exemption to non-Government employees for cash equivalent of leave salary only upto a maximum of Rs.3.00 lacs. The said limit was fixed in 1998 before 20 years. There is no basis for discrimination between non-Government employees and Government employees particularly as in many cases non-Government employees receive less amount as cash equivalent of leave salary as compared to Government employees.

For uniformity and simplicity, any cash equivalent of leave salary should be fully exempted from income tax without any limit as has been the case for Central Government/State Government employees.

5. Industrial Production:

One of the reasons for fluctuations in India’s export performance has been the lack of consistency in industrial or manufacturing growth. We see some growth in manufacturing for a month or so and then we see a dip. Manufacturing needs to be made competitive by addressing the issue of cost of capital, land, labour, logistics cost, etc.

Instead of merging few small units into large-one, one can explore the possibility of value chain production wherein some of the units make parts and components, some make the final product and some make accessories for the same product. Such manufacturing should be preferred in a close geographical area so that the supply chain is integrated with minimal logistics cost.

Other alternative could be to make or upgrade clusters so as to provide common facilities like tool rooms, testing facility, certification facility all under one roof for units producing same or similar goods so that the operational costs are minimised.

6. Provide Deemed Export Status to Indian industry under the Global bidding of Procurement

Indian companies winning contracts under the Global tender may be accorded deemed exports status, since they substitute direct import which would have taken place if the contract had been won by a foreign supplier. Deemed export status would enhance the competitiveness of Indian industry vis-à-vis foreign suppliers as the former would enjoy certain tax-related benefits

Export Promotion:

7. Settlement Scheme in Line to Excise and Service Tax for Disputes Related to Customs and DGFT Issues

Government may consider to introduce a Scheme in line with Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 to resolve all disputes relating to Customs and DGFT. Similar scheme was rolled out for the Income Tax also. There are large number of cases of exporters pending settlement with Customs and DGFT pertaining to classification disputes, Duty, Drawback, Export Obligation under Advance/EPCG/EOUs, etc. The waiver of interest & penalty and may be the duty liability will help the industries which are passing through rough patch due to lack of demand both domestically and globally. Introducing such a scheme for providing one-time window to eligible persons to avail amnesty or relief in accordance with the provisions will help large number of exporters to regularise their cases.

8. Services:

(a) Health sector is one of the fastest growing services sector but still huge mismatch exists between the demand and supply. We require close to 3 million beds to reach the target of 3 beds per 1000 people by 2025. We require about 1.5 million doctors and 2.5 million nurses to meet the growing demand of the sector. The required capacity building is the need of the hour and so is augmenting investment into the sector. Foreign patients from Africa and Middle-East are making beeline at Indian hospitals which can be multiplied with good hospitals in the country.

(b) India’s outward remittance on account of transport services is increasing year after year. We remitted USD 57 billion, 65 billion and 67 billion in 2017, 2018 and 2019 respectively. When we are looking at increasing our international trade to USD 2 trillion in an economy of USD 5 trillion, the outgo on transport services will increase to USD 150-200 billion. While we need to strengthen Shipping Corporation of India, new large shipping companies may also be set up in India to exploit the ready market available to them. Some fiscal support may be provided to attract private players in the field.

(c) GST Refund to Foreign Tourists: Refund of GST at the airport, as envisaged under IGST Act, has not yet been operationalised. Such an initiative will not only give fillip to tourism but will also help in exports of handicrafts, non-precious jewellery, carpets, Ayush and herbal products, beauty products etc

Banking Issues:

9. ECGC Coverage to the Banks for export finance

The rising NPAs have caused decline in export credit by the Banks to the exporters resulting liquidity problem in export efforts. To provide necessary comfort to Bankers, the Government may roll out the NIRVIK Scheme which was announced in September 2019 but remain un-8. operational so far.

Miscellaneous:

10. Higher Budget Allocation to Department of Commerce:

The share of exports in country’s GDP has declined in last few years. If India’s GDP has to grow at 8% plus, Exports should grow at 15% plus. DOC should be given enough budget allocation to support exports including agri exports which has come into focus only recently.