Product: Chemicals & chemical products, basic heavy inorganic chemicals, caustic soda (sodium hydroxide), soda ash (sodium carbonate), oxygen, titanium dioxide, acid (all kinds), liquid chlorine, oxygen gas in cylinder, liquid nitrogen, basic heavy organic chemicals, benzene, acetylene, purified terephthalic acid (PTA), methanol, phenol.
Outlook: Neutral
The following changes in the duties have been proposed in the Union budget 2011-12:
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Direct Taxes Code (DTC) to be finalized for enactment during 2011-12. DTC proposed to be effective from April 1, 2012.
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Central Excise Duty to be maintained at standard rate of 10%. Base rate on excise duty raised to 5% from 4%
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Current surcharge of 7.5% on domestic companies proposed to be reduced to 5%
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Minimum Alternative Tax (MAT) increased from 18% to 18.5% of book profits. However, adjusted for surcharge reduction the effective rate remains the same
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Lower rate of 15% tax on dividends received by an Indian company from its foreign subsidiary Service tax rate held at 10 percent
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Weighted deduction on payments made to National Laboratories, Universities and Institutes of Technology to be enhanced to 200%.
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Basic customs duty on carbon black feed stock is being reduced from 5% to 2.5%.
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Basic customs duty on petroleum coke is being reduced from 5% to 2.5%.
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Basic customs duty on Acrylonitrile is being reduced from 5% to 2.5%.
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Basic customs duty on Caprolactam is being reduced from 10% to 7.5 %.
Industry expectation- Largely unfulfilled
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Increase the Peak Import Duty on Chemicals from 7.5% ad valorem to 12.5% ad valorem
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Zero Import Duty on feedstock's (Naphtha and Hydrocarbons such as Ethane, Propane) which currently attract Import Duty of 5% ad valorem
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Zero Import Duty on Ethanol from 7.5% ad valorem
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Import Duty on Coal and LNG to be reduced from 5% ad valorem to zero.
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Import Duty on Fuels (including Furnace Oil/ LSHS etc.) is 10% ad valorem, which is higher than the Import Duty on most of the chemical products (at 7.5%) ad valorem. While, ideally, fuels need to be made available to Indian industry at international prices and should ideally be eligible for import at Zero duty, Industry at least for roll back of duty to 5% ad valorem.
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Industry expects Zero Import Duty on Catalysts. Certain precious metal Catalysts like Nickel or Nickel Compounds, Palladium Copper Chromite and others attract Import Duty of 7.5%, may kindly be reduced to Zero.
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The Import Duty on Naphtha which is a basic input is higher at 5% ad valorem, while the Import Duty on Para-Xylene is Zero. Industry expects the government to correct this anomaly and fix the Import Duty on Para-Xylene at 5% ad valorem.
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Ethylene, Propylene and other Olefinic monomers like Butene, Octene are derived from Naphtha and currently attracts 5% duty. Since, these are primary building blocks, import Duty on these may be reduced to 2.5% ad valorem.
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Benzene, Toluene, Ortho-Xylene, Mix-Xylene, Cumene and Ethyl Benzene are starting points for Organic Chemical Synthesis and presently attract 5% ad valorem Import Duty. Industry expects the import Duty on these Basic Inputs be maintained at not more than 5% ad valorem.
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Capital Goods be made Duty Free or the Import Duty on Capital Goods be brought down to a level not more than 5% ad valorem.
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Inputs/equipment of captive power plants and their spares are allowed duty free. Similarly, fuels required for captive power plants may also be allowed at zero rate of duty.
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Depreciation Rate for Chemical Industry was earlier @ 25% which was brought down 15%. Industry expects that same may be restored to 25%.
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Extend income tax exemption of 200% of expenditure in R&D beyond 2012 by additional 10 Yrs.
Budget Impact
Most of the expectations of the chemical industry remain unfulfilled. So it has mostly neutral impact.
Marginal reduction in effective rate of tax of Chlor alkali companies with reduction in surcharge from 7.5% to 5%
Reduction in customs duty on carbon black feed stock from 5% to 2.5% is beneficial to Carbon black manufacturers as this will lower their raw material costs.
Stocks to watch
Castrol India; BOC India; Beck India; Foseco India; BASF India; Industrial Organics, and Philips Carbon.
Outlook
With overall industrialization and economic growth, India provides major opportunities for growth of chemical industry. However surge of imports from Asian and Middle East countries has resulted into growing menace of dumping.
Producers from Middle East (with feedstock cost advantage) and China are aggressively pursuing Indian markets due to very low tariff levels. Combined with this high cost of power, energy, finance and capital equipment are severe constraints and stumbling blocks.
However no major announcements were made in the Union budget 2011-12. Overall Union Budget 2011-12 maintained status quo for the chemical industry.