Finance minister P. Chidambaram’s big-ticket tax reforms in the 2005-06 Budget will, in all likelihood, include a 5 per cent cut in the peak basic customs duty to 15 per cent from 20 per cent. This is expected to bring down India’s effective rate of customs duty from the present 39.2 per cent to 33.4 per cent. This, however, excludes the 2 per cent education cess introduced by the government in the Budget for this fiscal.According to finance ministry sources, the cut in the peak basic customs duty is in line with India’s avowed aim of reaching the Asean tariff levels by 2005-06. Notwithstanding the 5 per cent cut, the country’s tariff levels will continue to be significantly higher than those in the Asean countries where average import duties are as low as 7-8 per cent now.Chidambaram will also seriously consider whether the customs duty on crude oil should be cut to 5 per cent from 10 per cent at present. A final decision will, however, hinge on the recommendations of the Ashok Lahiri committee on rationalising oil duties, sources said. While a section of the committee is in favour of halving the import duties, the revenue department has pointed out that successive indirect tax cuts have already cost the exchequer over Rs 5,000 crore.In indirect taxes, a successful implementation of a nationwide VAT regime is one of the major reforms Chidambaram would have to undertake in his second Budget. With 26 states having already submitted VAT bills, and Uttar Pradesh too set to come on board, implementation of VAT in the next fiscal seems a certainty.The government is, however, unlikely to take on board the recommendations of the Vijay Kelkar task force on the FRBM Act, as far as VAT is concerned.
