Budget 2014: 10 big indirect tax changes that can transform industry
Tax Partner, EY
Senior Tax Professional, EY
As the nation prepares for the much awaited Union Budget on 10 July 2014, the industry expectations for indirect tax changes have been articulated by several chambers and industry segments alike. While the Government has already granted one of the wish in advance by extending the excise SOPS for six more months, the following 10 changes in indirect taxes could contribute to transform the industry and prove to be a true return gift for the trust shown by the second largest manpower strength of the world in mandating a strong and stable Government.
1. Early implementation of GST: While the earlier Finance Ministers have successively announced the Roadmap to GST and the implementation schedules (and failed...), the implementation of such radical tax reforms should be the topmost agenda. GST with the reduction in multiple taxation, tax administration and reporting would bring significant transparency to the realm of indirect taxes and would be transformational in placing the domestic industry on par with several of their overseas counterparts
2. Special additional customs duty: The special additional customs duty on imports has been a cause of concern for the manufacturers, traders and service providers alike. For manufacturers, it results in higher input duties leading to credit built up and added cost for service providers. While refund is available to traders, there are practical challenges causing difficulties.
3. Reduction in CST Rate: The reduction of CST rate from 4 to zero is long overdue and stopped mid-way leading to a hybrid of origin and destination based taxes co-existing. Further reduction in the CST rate would not only reduce the cost of inter-state purchases but also signal the way for the integrated GST as envisaged.
4. Double taxation: VAT or service tax or both? A recurring challenge for several businesses is with regard to double taxation (VAT/ Service tax or both). These challenges of double taxation are not trivial by any means and can have serious financial consequences for companies engaged in a range of businesses. There should be clear demarcation of the values being taxed for the federal and State levels.
5. Simplifying CENVAT credit: While the input credit of creditable customs duties, excise and service tax are available to the manufacturers and service providers, there are several areas of dispute around common inputs/ input services, input service distributor provisions.
6. Dispute Resolution: The dispute resolution mechanism needs to be overhauled to prevent disputes from occurring and in case disputes do arise to ensure that these are settled in an expeditious and fair manner.
7. Timely Refunds: The process of tax refunds should be streamlined for granting the refunds in a time bound manner or automatically entitle the industry for interest on delay from the time of filing to granting of refund. It is important that the administrative machinery is made accountable for issuing timely refunds and not rejecting the claims on frivolous grounds.
8. Service tax on employer for employee benefits: The move to a negative list has been adopted positively by the industry. However, there are certain ambiguities such as with respect to the employee perquisites and recoveries. While the revenue implications overall may not be significant, there is much deterrent to the industry in offering benefits to their employees even for a nominal cost. Extending the exemption both ways could clear the plethora of ambiguities in the industry and save the administrative efforts at both Government and industry.
9. Simplifying the tax structures: The tax structure should be simplified to levy at single rates instead of the break-up between various cesses, surcharges, additional taxes. Such simplification would also help to eliminate the complications with respect to the base values being considered for the multiple rates within the tax structure.
10. Acting on TARC recommendation: The first report of the Tax Administration Reform Commission (TARC) is praiseworthy for highlighting the tax payers plight and recommending several changes such as strengthening of Large Taxpayer Unit, use of Information and Communication Technology, common approach to related party transactions, etc. If implemented earnestly, these would bring about administrative reforms aligned to progressive best practices for tax payers and the field formation.
(Views expressed are personal)