Budget 2014: an Attempt at Rationalisation of Indirect Taxes
Tax partner, EY
At last, the much awaited Union Budget (and it is probably fair to say one of the most highly anticipated Union Budgets in recent times) has been presented and now we can spend the next couple of days scouring through all the budget related documents.
After all, any good tax professional knows that it's all about the fine print. One thing is for certain, managing the economics of a nation, which is widely agreed to be the largest democracy in the world, can be no easy task. Walking the tight rope of political acceptability (popular demand) and required fiscal decision making (no matter how unpopular it might be) has to be one of the most daunting responsibilities. Keeping this in context, let's have a quick look at what has been proposed.
While proof of the pudding is in the tasting, the clear intent from the Finance Minister's address on the indirect tax proposals has been an attempt to give local manufacturing a shot in the arm, a show of revenue rationalization and consolidation, a demonstration of proactive tax compliance and a conveyance of clear intent for tax reform with Goods and Services Tax (GST).
Keeping in mind revenue consolidation, the obvious choice was service tax. As an area that has been consistently contributing healthy revenue growth for the Central Government and with GST on the cards, a pruning of the service tax negative list and related exemptions are steps in the direction of streamlining service tax from a GST point of view, while contributing to the exchequer.
Extension of service tax on the sale of space or time for advertisements in new segments (online and mobile advertising), extending service tax to radio-taxis and withdrawal of exemptions on other services achieve the intent of revenue consolidation. These new levies are sugar coated with changes in the existing regulations to provide relief to the shipping and goods transportation industries, and with exemptions and concessions to be extended to the tourism industry.
To bolster the manufacturing sector, a slew of basic customs duty (BCD) reductions have been proposed. While these reductions will give the relevant industries a breath of fresh air, they are also proposed to address the issue of inverted duty structures. These measures include BCD reductions on the import of specified inputs for the manufacture of soap(s) and oleo-chemicals and extend across the import of colour picture tubes (for the manufacture of Cathode Ray TVs), LCD/LED TV Panels (below 19 inches) and specified inputs for use in the manufacture of LCD/LED TVs. All of these concessions have also been accompanied with various duty rationalizations that may see upward revisions of BCD on specified items and also a 10 per cent BCD on specific items that are not covered under the Information Technology Agreement.
Excise duties have also seen similar concessions being extended to boost domestic manufacturing. These have extended across the agricultural and renewable energy sectors, specified segment of the footwear industry and a reaffirmation of the extension of concessions beyond June 30, 2014 to December 31, 2014 for the capital goods, consumer durables and automobile sectors. However, the usual suspect i.e. tobacco products are set to see escalations in the range of 11 per cent to 72 per cent. Another proposal, one we are thankful is coming after the brunt of a very hard summer, is the proposed additional 5 per cent excise duty on aerated water containing added sugar.
Perhaps the fine print warrants a mention as well and this is possibly where the tax administration gets it moment in the spot light. Advance rulings are proposed to be made available to resident private limited companies - a measure that if implemented properly, should be as welcomed as the proposal to facilitate expedient dispute resolution with the Settlement Commission. As is the proposal for an "Indian Customs Single Window" and the online processing of permissions - all of which if implemented in the same spirit and efficiency as they are proposed, can provide a much needed operational breather for importers and exporters.
Tax compliance has also come into focus, with measures such as mandatory pre-deposits, higher rate of interest on delay of payment of service tax after certain period and allowing certain levels of department officers to do search and seizure, showing this intent.
What remains to be seen is the extent of discretion that would continue to be exercised over and above what is being prescribed. Another proposal to keep an eye on is the limit (6 months) being sought on the availing of CENVAT Credit - something that is currently unfettered and it would be interesting to see how the transition to this would be handled.
At the end of the day, there is enough to talk about, but is there enough to achieve the expectations the nation has in its new government. Time will tell.