A bill to provide tax incentives to the garment sector and enable the government to raise customs duty on marble and granite from 10 to 40% was approved by Lok Sabha on Wednesday after Finance Minister Arun Jaitley said these measures will help in creating jobs and protect domestic industry from import surge. The Taxation Laws (Amendment) Bill, 2016 also seeks to expand the definition of "demerger" with a view to facilitate the splitting or reconstruction of erstwhile public sector companies.
The changes in the Income Tax Act will give effect to the conditions attached to the transfer of shares by the government, Jaitley said, adding it would enable the Centre to make use of land belonging to the erstwhile VSNL which has remained with the government following privatisation of the telecom PSU 14 years ago. The taxation amendment bill, which provides for three changes, was passed by the Lok Sabha by voice vote after a short debate.As regards the garment sector, the bill eases the condition for availing tax incentives under Section 80JJAA of the Income Tax Act, 1961. "In view of the seasonal nature of the business of the manufacturing of apparel, there is need to reduce the period of employment of an employee who is employed in this business from 240 days to 150 days," said the state of objects and reasons of the Bill. The incentive, Jaitley added, is aimed at making Indian "apparel industry competitive, so that they are able to make the cost advantage. I am sure with these incentives, the industry would be able to contribute a large number of jobs." As far as customs duty on marble and granite is concerned, he said the measure will give flexibility to the government to raise duty to WTO bound rate of 40% with a view to protect domestic industry from the onslaught of import.
The amendments in the Customs Tariff Act is expected to give a boost to marble and granite producers as it will pave the way for hiking customs duty to 40% from 10% on marble and granite blocks and impose quantitative restrictions and import duty to check dumping from China. Jaitley said that currently there are measures like quantitative restrictions and minimum import price (MIP) to control sudden imports. He said the government has taken similar measures to support steel industry by imposing MIP.
The amendments will give flexibility to raise the duty to 40% to deal with a sudden flush of imports, he added. On whether the duty would lead to increase in prices of marble, he said those consumers who can pay higher prices can always go in for imported marble. As far as the definition of the term "demerger" in the Income Tax Act is concerned, presently it does not include in its scope the splitting up or reconstruction of a company, which ceased to be a public sector company as a result of transfer of its shares by the Government.
Widening of term 'demerger'
"With a view to facilitate the splitting up or the reconstruction of erstwhile public sector companies and to give effect to the conditions attached to the transfer of shares by the Government, there is a need to bring these types of splitting up or the reconstruction within the scope of definition of the term demerger," said the Statement of Objects and Reasons of the bill.
Widening the definition of term "demerger", Jaitley said it would help in using a large chunk of VSNL land by the government. The vacant land can be used for various purposes including construction of houses for government employees, he said, adding "therefore it will be a great asset." As regards the garment sector, the changes in the IT Act will enable textiles firms to lower threshold of minimum job days to 150 days from the existing 240, to get tax incentives.
Referring to the amendment, Jaitley said it would boost the garment sector which has been suffering on account of shrinking global trade. Dip in commodity prices too have impacted the value of exports, he said, adding last month the government announced a package for apparel sector. China is a bigger supplier but they were losing on account of wage increases there though they remained competitive due to larger volumes they trade. Small countries like Bangladesh and Vietnam were doing well in garment trade because in international trade they have the advantage of valuation and taxation over India as they are least developed countries. They have price and quota advantages in regions like Europe.
On the other hand, he said India had price disadvantage of 8-10 %. "When we start with the handicap of 8-10 %, we have to cover up that. So we have to incentivise," he said, adding "we have to give some kind of tax incentives."
Jaitley said it was decided to reduce the number of days for employment for availing tax incentives has been reduced from 240 to 150 days because "we mainly export summer garments and not woolen". Earlier while moving the bill, he said about 52% of over 771 acre land owned by VSNL, an erstwhile public sector firm sold to Tata Communications in the previous NDA government, will be accrued to the government and it intends to use the land for public benefits, including housing.
Opposition's reaction
Participating in the discussion, Deepender Singh Hooda (Congress) questioned the hurry in pushing the bill and noted that exports under the government had been going down and saw a rise for the first time in 20 months. Sugata Bose (TMC) said the government should not encourage protectionist policies but encourage manufacturers to be competitive in price as well quality of their products. Nishikant Dubey (BJP) hit out at "policy paralysis" of the UPA government and said the amendments will help garment and marble industries, while NK Premchandran (RSP) opposed the bill.
Asaduddin Owaisi (AIMIM) said that due to the government policies, weavers of areas like Bhiwandi, Malegaon and Varanasi have suffered and this bill would impact the textiles sector which is the second largest employer after agri. This is benefiting only handful of corporates and not weavers of these regions, he said demanding withdrawal of anti-dumping duty on synthetic yarn. Varaprasad Rao (YSR Congress) said that a mechanism should be evolved to deal with the NPAs. He said that Rs 25,000 crore infused in the banks is inadequate and it is high time that the government should give high priority to NPAs. "Corporates are lunching the banking sector," he claimed.
He also stressed for evolving a mechanism so that businesses spent 2% of their profit on Corporate Social Responsibility. Sushmita Dev (Congress) said the biggest promise of Modi government was job creation. However, "What we feel is that India is heading towards jobless growth." Opposing the bill, Adhir Ranjan Chowdhury (Congress) said that it would aggravate unemployment scenario in the apparel sector. "I strongly oppose this legislature brought to serve the interest of some special personalities." Sudheer Gupta (BJP), Ravindra Babu (TDP), Arvind Sawant (SS) and Jaydev Galla (TDP) also participated in the discussion.
http://www.dnaindia.com/money/report-taxation-laws-amendment-bill-passed-in-lok-sabha-garments-sector-to-get-tax-incentives-2243580
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