Budget 2014: Impact on Manufacturing sector
Samir Kanabar and Heetesh Veera
Tax Partners, EY
Reforming manufacturing sector has been the focal point of NDA manifesto. Budget 2014 is sheer reflection where the Hon’ble Finance Minister has introduced several measures to make India a key manufacturing hub. In the following paras, we bring you some of the key measures announced for manufacturing sector:
There have been no changes in the peak customs duty (10%) and excise duty (12%) rates. However, with a clear thrust on jumpstart manufacturing, customs and excise duties have been rationalised for various products, which are likely to benefit key sectors such as steel, solar and wind power, food processing, electronics, chemical and petrochemical.
At the same time, to encourage in-country production of electronics, custom duty rates have been increased on specified telecommunication products and education cess imposed on all imported electronic products.
The FM has indicated that benefit of reduced excise duty rates for capital goods, consumer durables and automobile sectors, while extended for a period of six months, may not be extended beyond 31 December 2014, as the sectors are likely to show recovery by then.
To increase use of renewable sources such as solar power and wind power, duty concessions have been extended to equipment/ inputs required for setting up solar energy projects and inputs for manufacture of wind energy equipment.
Consumer product segment should benefit from the excise duty rate reduction on specified food processing and packaging machinery as well as for the footwear industry. However, to mobilise resources, excise duty has been increased on cigarettes, pan masala and aerated waters as well as clean energy cess.
A key expectation of the industry was the neutralization of impact of the SC ruling in case of an automotive major on excise valuation. The excise valuation rules have now been suitably amended to clarify that atleast prospectively, excise duty would be payable on “transaction value” even where a manufacturer sells below cost plus profit, in so far as there is no flowback of any additional consideration from the buyer.
On an overall basis, trade facilitation measures such as faster clearance of cargo and single window scheme for import and export are welcome measures.
From a service tax perspective, there is no change in rate of service tax (12%). However, amendments in service tax have been introduced to rationalize negative list and exemptions. The positive developments include expansion of Advance Rulings scope to include resident private limited companies and expansion in scope of Settlement Commission. However mandatory pre-deposits both at the level of Commissioner Appeals and CESTAT of 7.5 and 10 percent respectively with a ceiling of INR 10 crores, as well as the drastic increase in service tax interest rates from 18% to 30% (depending upon period of delay) are unlikely to be well received by the industry. Other stringent provisions include introduction of maximum time limit of 6 months for claiming cenvat credit, and the amendment of Cenvat rules to disallow transfer of credit by a large tax payer (LTU) from one unit to another.
On GST, the roadmap is still elusive, though strong commitment from FM provides indication of resolution of key areas of disputes with states and early introduction of GST.
In order to attract investments from SME’s in manufacturing sector, the investment ceiling for claiming investment allowance has been reduced from Rs 100 crores to Rs 25 crores. This will result into expansion of manufacturing sector and at the same time incentivising SME’s for investment made before March 2017.
Benefit of investment - linked tax holiday which allows 100% deduction on capital expenditure (other than expenditure on land, goodwill and financial instrument) is extended for laying and operating slurry pipeline for transportation of iron ore as well as developing and operating semiconductor wafer fabrication manufacturing unit if such unit is notified by Board in accordance with prescribed guidelines.
As regards Textile industry it is proposed to set up a Trade facilitation Centre and Crafts Museum to develop and promote handloom products. Further, six more Textile mega-clusters are proposed to be set up for which a sum of INR 200 crores is allocated.
Budget 2014 could be said as a visionary Budget as it lays down a roadmap for manufacturing sector with more to come in future. The above measures will not only encourage domestic manufacturing but also allow India to be a competitive player for exporting goods manufactured in India. This will promote “made in India” label and reduce our dependence on import of manufactured consumer as well as industrial goods.