FinMin opposes fiscal sops for urea in Budget

The Finance Ministry has declined to provide further fiscal concessions to new or existing urea manufacturers in the forthcoming Budget.

The Finance Ministry has declined to provide further fiscal concessions to new or existing urea manufacturers in the forthcoming Budget.

“Department of Revenue is of the view that sectoral development should be supported through budgetary allocations or plan support so that quantifiable results are achieved in a time-bound manner, and not through fiscal incentives,” it recently wrote to Fertiliser Ministry which had pushed for tax breaks to attract investments in urea production. “Fiscal concessions, besides distorting the tax structure, act as hidden subsidies, and are unfair to other sector which does not enjoy similar treatment…Therefore, the department does not support the proposal for exemption from customs and excise duty on capital goods for use in urea plants,” it said.

With urea imports running riot this fiscal year, Fertiliser Ministry had proposed that India become self sufficient, as only till 2003-04 it was to promote domestic production with exemptions.

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As the gap between domestic demand and output may exceed from 60 lakh tonnes at present to 110 lakh tonnes by 2011-12, it said that large dependence on import was “not desirable” as it had an inflationary impact on international prices. To that effect, it sought more fiscal relief to reduce the cost of urea plants in the country. “The reduction in project cost through proper fiscal incentives will partially compensate for the feedstock disadvantage and also enable the government to save subsidy,” it said while seeking customs and excise duty exemptions.

However, that failed to impress the Finance Ministry which has argued that the entire sector was already enjoying a concessional customs duty of 5 per cent on project imports in new plants, expansion or renovation and modernisation of existing ones as well as on import of spares. “Full exemption from customs and excise duties to capital goods for use in urea plants will have substantial revenue implications,” it said. Additionally, the exemption from excise duty would create a disadvantage for domestic capital goods makers who would not be able to take credit of import duty.

Sources said that a final decision to extend more concessions rests with the Prime Minister whom fertiliser minister Ram Bilas Paswan had met earlier this month. Paswan may have the last word in the case of fertiliser subsidy which is being reworked and is not to the satisfaction of Chidambaram, they said.