Published Editorial

Budget 2013: Stocktaking of indirect tax amendments

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The Economic Times

by

Bipin Sapra
Tax Partner
EY

The Finance Minister presented the tax proposals with the objective of achieving clarity in the tax laws, stabilizing tax regime and streamlining the administrative and dispute resolution mechanism. However no significant proposal in the said direction was made from an indirect tax perspective.

The peak rate of Customs, Excise and Service tax remains unchanged. The proposals were largely confined to change in rates of duties on specified products without there being any policy level amendment.

The Finance Minister has proposed an increase in Customs duty on set top boxes from 5 percent to 10 percent. It has also been proposed to increase Customs duty on luxury goods, such as high end motor vehicles, motor cycles, yachts and similar vessels.

On the Excise front, increase in the rate of duty on specified goods has been proposed. More specifically, duty on SUVs, except those registered as taxis, has been proposed to be increased from 27 to 30 percent. Further, an increase of about 18 percent in Excise duty has been proposed on cigarettes, cigars, cheroots and cigarillos. In addition, the Excise duty on mobile phones priced above Rs. 2000 is proposed to be raised to 6 percent from the current 1 percent. Proposals have also been made to increase Excise duty on marble from the existing INR 30 per sq. mtr. to INR 60 per sq. mtr.

As regards Service tax, amendments have been made in the existing abatements and exemptions. The scope of negative list has been marginally expanded to include vocational education courses approved by State Council for Vocational Training. Further, abatement in respect of services in the nature of construction other than that of residential unit having carpet area more than 2000 sq ft. or where the amount charged is more than 1 crore has been reduced by 5 percent. Further, the earlier exemption extended to educational institutes providing auxiliary education services and renting of immovable property has been done away with. Exemption on copyright of cinematography has now been restricted to films exhibited in cinema halls. Other amendments which are certain to affect Aam Aadmi include imposition of service tax on earlier exempted air-conditioned restaurants which do not serve liquor and on services in the nature of parking of vehicles.

The Budget Proposals towards checking evasion of Service tax are stern. On one hand, proposals for stricter penal and prosecution provisions have been made and on the other, a voluntary compliance encouragement scheme has been proposed. As regards the former, personal penalty upto INR 1 lakh for specified contraventions such as evasion of service tax, incorrect availment of Cenvat credit etc. is proposed on the official, in charge at the time of offence. Further, for failure to deposit Service tax, an increase in the term of imprisonment is proposed from 3 years to 7 years. Also, proposal has been made to empower the tax authorities to arrest for specified offences. As regards the latter, the tax defaulters have been given the option to pay the tax dues from October 2007 to December 2012 in two installments without any interest or penal implications.

Other important changes include increase in the period of stay from the existing 180 days to 365 days from the date of the initial stay order. The Indian resident public limited companies have also been allowed to take advance ruling for the determination of Service tax/ Excise duty payable on a proposed transaction.

As regards GST, the Finance Minister stated that overwhelming majority States have agreed that there is a need for Constitutional amendment to pass GST law. The GST law will be drafted by the State Finance Ministers and the GST Council. Realizing that there is a need for the Centre to compensate the states for loss due to reduction in the CST rate, INR 9000 crore towards the balance of CST Compensation have been earmarked.

In conclusion, although it was widely anticipated that the last year's budget momentum would be continued to pave way for the much hyped GST, the current budget did not seem to move in that direction. Further, the budget failed to answer most of the issues which have been hounding the trade. It seems the Finance Minister has tried to play it safe by introducing only minor tweaks, probably with next year's general elections in mind.

(Views expressed are personal)