INDIAN AGRO & RECYCLED PAPER MILLS ASSOCIATION

404, Vikrant Tower, 4 Rajendra Place

New Delhi – 110 008

 

 UNION BUDGET PROPOSALS FOR  THE YEAR 2011-2012

– Analysis report by IARPMA Tax Division

Indian Paper Industry Scenario

The Indian Paper Industry ranks 12^th in world and accounts for more than 1.75% of the world’s production of paper and paperboard. The demand scenario in paper industry was sluggish during the year 2009 due to the economic recession and this scenario persisted till the end of the financial year 2009-2010.  The weak demand followed by the economic recession, and uncontrolled imports from China and Indonesia kept prices under pressure. However, with the fiscal supports extended by the Government of India as well as the cautious approaches by the Industry, the year 2010 from the 2^nd quarter witnessed the demand cycle reversing primarily driven by demand from Educational and FMCG sectors and closure of many capacities in various parts of the world, particularly in European Union. The growth in the paper industry has mirrored the growth in GDP and the Indian paper industry has grown on an average 6.7% over the last few years. Paper production is expected to grow by 9% in 2011-12 and by 8.75% in 2012-13 mainly led by healthy growth in demand from the educational, corporate, industrial and retail segments. Under this industrial scenario, the proposal of union budget 2011-12 has a neutral effect on the paper industry.

Duty structure in brief

Excise Duty	Pre Budget 2010-2011	Post Budget 2011-12
Maplitho/Board/Duplex/ Coated paper	4	5
Newsprint	4	5
Corrugated boxes	4	5

  

Custom Duty	Pre Budget 2010-2011	Post Budget 2011-12
Wood Pulp Rayon grade / Waste paper)	5	2.5
Wood Pulp	5	5

 The Budget proposals of the Government are growth oriented and the major highlights of the budget proposals as far as the paper industry is concerned are as under:

Earlier excise duty exemption given for the Non-conventional raw materials (waste paper and agro residues based) based paper mills for initial clearance up to 3500 MT has been withdrawn which is dismal for the industry.    [S.No. 90 of Notification No.4/2006-CE dated the 1^st.March 2006 is being omitted by Notification No.   4/2011-CE dated the 1^st.March 2011 refers].

The custom duty on the raw material such as wood pulp and waste paper has been reduced from 5% to 2.5% which will trigger the growth of the industry to some extent. Peak rate of Custom Duty held at its current level.  However the excise duty on finished goods, in most cases (writing and printing paper) has been increased from 4 to 5%. This will have an offsetting effect. Companies manufacturing cartons, boxes and corrugated boxes will have some positive effect since they would benefit from the 50% reduction in customs duty while excise duty has remained at the same levels. However, one of the negative impacts of the budget to paper industry is not to make any announcement on implement of the Technology Upgradation Fund (TUF) which is the longstanding demand of the industry to upgrade the technological level of the paper industry particularly at a time when the industry is expected to compete with Global players.

In the Union Budget, Excise duty proposed for the material fall under Tariff items 4818 40 10, 4818 40 90 and 4820 increased from 4 – 5%. Notification No. 2/2011-Central Excise, New Delhi 1^st March 2011, effective excise duty is furnished as hereunder:-

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the excisable goods of the description specified in column (3) of the Table below and falling under Chapter, heading, sub-heading or tariff item of the First Schedule to the Central Excise Tariff Act, 1985 ( 5 of 1986), specified in corresponding entry in column (2) of the said Table, from so much of the duty of excise leviable thereon under the said Central Excise Act, as is in excess of the amount calculated at the rate of 5% ad valorem:

 

(1)	(2)	(3)	(4)	(5)
34	4818 40 10	All goods	5%	-
35	4818 40 90	All goods	5%	-
36	4820	Notebooks and exercise books	5%	-

As per the notification No. 1/2011-Central Excise dated 1^st March 2011,

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the excisable goods of the description specified in column (3) of the Table below and falling under Chapter, heading, sub-heading or tariff item of the First Schedule to the Central Excise Tariff Act, 1985 ( 5 of 1986), specified in the corresponding entry in column (2) of the said Table, from so much of the duty of excise leviable thereon under the said Central Excise Act, as is in excess of the amount calculated at the rate of 1% ad valorem:

Provided that nothing contained in this notification shall apply to the goods in respect of which credit of duty on inputs or tax on input services has been taken under the provisions of the CENVAT Credit Rules, 2004.

 

(1)	(2)	(3)	(4)	(5)
63	4802	Writing or Printing paper for printing of educational textbooks	1%	-
64	4802	Paper or paperboard, in the manufacture of which,- (i) the principal process of lifting the pulp is done by hand; and (ii) if power driven sheet forming equipment is used, the Cylinder Mould Vat does not exceed 40 inches	1%	-
65	4817	Letters, envelops, lettercards and plain postcards	1%	-
66	4818 4010	All goods	1%
67	4818 4090	All Goods	1%
68	4820	Note book and excise book	1%

Excise tax on diapers and sanitary napkins reduced from 10% to 1% which will boost the demand and make way for more investment in this segment

The impact of Union Budget 2011-12 on the domestic paper industry is neutral. Bringing the custom duty for import of waste paper to 2.5% will definitely reduce raw material cost for paper manufacturers some extent. Hence, the overall impact remains neutral.

Other Changes

 

INCOME-TAX

Rates of Income-tax

 

I.      Rates of income-tax in respect of income liable to tax for the assessment year 2011-12

In respect of income of all categories of assessees liable to tax for the assessment year 2011-12, the rates of income-tax
have been specified in Part I of the First Schedule to the Bill. These are the same as those laid down in Part III ofthe First Schedule
to the Finance Act, 2010, for the purposes of computation of "advance tax", deduction of tax at source from "Salaries" and charging
of tax payable in certain cases.

(1) Surcharge on income-tax-

Surcharge shall be levied in respect of income liable to tax for the assessment year 2011-12, in the following cases:-
(a) in the case of a domestic company having total income exceeding one crore rupees, the amount of income-tax computed
shall be increased by a surcharge for the purposes of the Union calculated at the rate of seven and one-half per cent.
of such income-tax.

(b) in the case of a company, other than a domestic company, having total income exceeding one crore rupees, the amount of income-tax computed shall be increased by a surcharqe for the purposes of the Union calculated at the rate of two and one-half per cent. of such income-tax.

Surcharge shall also be levied in the case of every company having total income chargeable to tax under section 115JB
of the Income-tax Act, 1961 (hereinafter referred to as 'Income-tax Act') .

However, marginal relief shall be allowed in all these cases to ensure that the additional amount of income-tax payable,
including surcharge, on the excess of income over one crore rupees is limited to the amount by which the income is more than
one crore rupees.

 

(2) Education Cess-

For assessment year 2011-12, additional surcharge called the "Education Cess on income-tax" and "Secondary and Higher
Education Cess on income-tax" shall continue to be levied at the rate oftwo per cent. and one per cent., respectively, on the amount
of tax computed, inclusive of surcharqe, in ail cases. No marginal relief shall be available in respect of such Cess.

     

II. Rates for deduction of income-tax at source during the financial year 2011-12 from certain incomes other than
"Salaries"

The rates for deduction of income-tax at source during the financial year 2011-12 from certain incomes other than "Salaries"
have been specified in Part II of the First Schedule to the Bill. The rates for all the categories of persons will remain the same
as those specified in Part II of the First Schedule to the Finance Act, 2010 for the purposes of deduction of income-tax at source
during the financial year 2010-11. However, in case of interest income paid to a non-resident by a notified infrastructure debt
fund, the rates for deduction have now been provided in the proposed new section 194LB.

(1) Surcharge-

The amount of tax so deducted. in the case of a company other than a domestic company, shall be increased by a surcharge
at the rate of two per cent. of such tax, where the income or tile aggregate of such incomes paid or likely to be paid and subject
to the deduction exceeds one crore rupees.

No surcharge will be levied on deductions in other cases.

(2) Education Cess-

"Education Cess on income-tax" and "Secondary and Higher Education Cess on income-tax" shall continue to be levied
at the rate of two per cent. and one per cent. respectively, of income-tax including surcharge wherever applicable, in the cases
of persons not resident in India including companies other than domestic company.

      III.             Rates for deduction of income-tax at source from "Salaries", computation of "advance tax" and charging of income-
tax in special cases during the financial year 2011-12

The rates for deduction of income-tax at source from "Salaries" during the financial year 2011-12 and also for computation
of "advance tax" payable during the said year in the case of all categories of assessees have been specified in Part III of the First
Schedule to the Bill.

These rates are also applicable for charging income-tax during the financial year 2011-12 on current incomes in cases where
accelerated assessments have to be made, for instance, provisional assessment of shipping profits arising in India to
non-residents, assessment of persons leavinq India for good during the financial year, assessment of persons who are likely
to transfer property to avoid tax. assessment of bodies formed for a ShOl1 duration, etc.

The salient features of the rates specified in the said Part III are indicated in the following paragraphs-

 

A   Individual, Hindu undivided family, association of persons, body of individuals, artificial juridical person
Paragraph A of Part-III of First Schedule to the Bill provides following rates of income-tax:-

(i) The rates of income-tax in the case of every individual (other than those mentioned in (ii), (iii) and (iv) below) or Hindu
undivided family or every association of persons or body of individuals, whether incorporated or not, or every artificial juridical
person referred to in sub-clause (vii) of clause (31) of section 2 ofthe income-tax Act (not being a case to which any other Paragraph
of Part III applies) are as under :-