Chemicals: Budget 2013-14 Analysis
The following announcements have been proposed in the Union budget 2013-14
No change in the peak rate of basic customs duty of 10% for non-agricultural products.
No change in the normal rate of excise duty of 12% and the normal rate of service tax of 12%
Surcharge increased from 5% to 10% on domestic companies whose taxable income exceeds Rs 10 crore. In the case of foreign companies, who pay the higher rate of corporate tax, the surcharge will increase from 2% to 5%.
In all other cases such as dividend distribution tax or tax on distributed income, current surcharge increased from 5% to 10%. Additional surcharges will be in force for only one year i.e. FY’14
Education cess for all tax payers shall continue at 3%
Companies investing Rs 100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015 will be entitled to deduct an investment allowance of 15% of the investment.
Concessional rate of tax of 15% on dividend received by an Indian company from its foreign subsidiary proposed to continue for one more year. Further, the Indian company shall not be liable to pay dividend distribution tax on the distribution to its shareholders of that portion of the income received from its foreign subsidiary.
Increase the rate of tax on payments by way of royalty and fees for technical services to non-residents from 10% to 25%. However, the applicable rate will be the rate of tax stipulated in the DTAA (Double Tax Avoidance Agreements)
Work on draft GST Constitutional amendment bill and GST law expected to be taken forward. sum of Rs 9,000 crore is set apart in the budget towards the first instalment of the balance of CST compensation
A final withholding tax at the rate of 20% on profits distributed by unlisted companies to shareholders through buyback of shares
Industry Expectations – Not fulfilled
Expect basic custom duty on all feedstock for petrochemicals, including Naphtha should be a zero level
Expect basic custom duty on Reformate be pegged at zero percent to remove the inverted duty structure. Basic custom duty on Reformate is 10% whereas duty on Paraxylene is at 0%. This results in a severe duty inversion that needs to be corrected.
Expect customs duty on Propane should be pegged at 0%
Both EDC and VCM currently attract 2.5% custom duty. Industry expects that these being critical feedstock for the vinyl chain, duty on EDC and VCM may be brought down to zero level
Import duty on Styrene is currently at 2.5% level and in line with the basic logic of seeking lowest level of duty for feedstock. Industry expects that duty on Styrene may be brought down to Zero level.
Basic custom duty on Ethylene is @5%. Most of the products made from Ethylene viz: Polyethylene and PVC have basic customs duty @5%. This leaves zero duty spread between Ethylene and its products in the value chain. Industry expects duty on Ethylene at 0%
Import duty on fuel oil is currently at 5% level. Chlor Alkali industry being highly power intensive, it often needs to set-up own captive power plant that are often based on fuel oil. Industry expects that this may bring down to zero to make the industry cost competitive.
Import Duty on Ethyl Alcohol is currently at 7.5% level whereas import duty on Mono Ethylene Glycol is currently 5% and other Ethyl Alcohol based chemicals is at 7.5%. Ethyl Alcohol (Denatured) is a building block derived from molasses and is used for production of MEG, Acetic Acid, Ethyl Acetate, Acetic Anhydride etc. Industry that Custom Duty on import of Ethyl Alcohol (Denatured) maybe reduced to 0%
Methanol and Ammonia are important feedstock for the industry and it is recommended that import duty on this feedstock may be reduced to 0%
Most of the chemicals attract import duty of 7.5%. Industry expects that products where the prevailing duty is at this level, these can be enhanced to 10%.
No direct impact on Chemical industry.
Stocks to watch
Union Budget 2013-14 was neutral for the Chemical sector in absence of any announcement targeted at the sector. None of the demands of the industry were met.