The Union Budget 2016-17 was expected to take the current indirect tax regime a step closer to the proposed Goods and Service Tax (GST). It was widely expected that the government would introduce key amendments in the current tax regime itself in consonance with Make in India and easy of doing business campaigns of the Modi Government that would lead to overall sectorial growth.
Key expectations in indirect tax domain included proposals to encourage manufacture in India by broadening scope of input services to enable free flow of credits, proposals towards ease of doing business like moderation of the penal interest of 30%, clarifications on the scope of intermediary services, etc and measures to align the current tax regime closer to GST by pruning exemptions and rationalisation of tax rates.
The indirect tax proposals contained in the budget seeks to garner additional revenue of R20,670-crore. The basic rate of service tax, excise duty and customs duty have not been changed, however, small steps have been taken by introduction of new cesses, selective increase in duty rates of specified goods to achieve the envisaged additional revenues.
First of all, effective June 1,2016, Krishi Kalyan Cess @0.5% has been sought to be levied as service tax on all or any taxable services for improvement of agriculture or any related purpose. Accordingly, effective rate of service tax has been increased to 15% from the present rate of 14.5%. Secondly, infra cess ranging from 1% to 4% has been sought to be imposed on specified motor vehicles as an anti-Pollution initiative. However, 13 cesses levied by various ministries involving low revenues are proposed to be abolished.
In a move towards speedy ‘dispute resolution’, ‘ease of doing business in India’ and provide certainty in taxation, 11 new benches of the indirect tax tribunals across India have been proposed to be created along with a one-time proposal to resolve the cases pending before Commissioner (Appeals) under Dispute Resolution Scheme, 2016. To facilitate certainty on the classification of right to use of radio-frequency spectrum as a ‘service’ or ‘goods’, it has been clarified that assignments of such rights by Government and its subsequent transfer is a service and not sale of intangible goods.
On the compliance front, the Finance Minister has sought to address few long pending demands of industry. Interest rates on delayed payment of duty/tax across all indirect taxes are being rationalized and made uniform at 15%, except in case of Service Tax collected but not deposited by the assessee.
With inputs from Nimish Choudhary, senior manager, Deloitte Haskins