Govt no to tax sops for biodiesel

NEW DELHI: Biodiesel is not in favour, at least when it comes to tax breaks. Greens may not like the idea, but the revenue department had indicated that it would not favour biodiesel in Budget 2007. Rejecting recommendations from other wings of the government, the revenue department — which is seeking to contain sectoral tax exemptions — has said that there was no rationale to extend tax sops for investments made to produce the eco-friendly fuel.

Officials of the department are in the process of shaping broad contours of Budget 2007.The biodiesel sector was seeking concession on both the direct and indirect tax front to attract investments in plantation, collection, milling, processing and blending of items such as ethanol to produce biodiesel. Similarly, tax sops were sought for distribution of the product on the lines of concessions given to special category states in the north-east as well as Himachal Pradesh and Uttaranchal.

The revenue department — which is grappling with large-scale exemptions impacting its tax collections — does not find justification in extending tax concession to any new sector of the economy. The department’s contention is that in the present regime of moderate taxes, there was a need to review the existing tax concessions.
The sectoral concessions not only lead to revenue loss but also create distortions in allocation of scarce resources that result in sub-optimal economic growth, sources said. The government had, in fact, withdrawn the 68% exemption on Central excise count, 8% on Customs and 6% on direct tax count. With the government wanting to prune tax exemptions to enhance the tax base, it is unlikely that it will be willing to add more sectors.