The theme of the Budget was focusing on nine pillars revolving around priority areas of farm and rural sector, social sector including healthcare, infrastructure sector and employment generation.
The pillar of tax reform was seen to be in line with Jaitley’s road map with emphasis on relief to small tax payers, measures to boost growth and employment generation, incentivizing domestic value addition to help ‘Make in India’, measures for moving towards a pensioned society and measures for promoting affordable housing.
There have been a lot of expectations from this year’s Budget, the key being the revised road map for implementation of the much-awaited Goods and Services Tax (GST) regime. However, much to the dismay of the members of the Indian economy, barring a slight reference in the Budget speech, there has been no substantial discussion surrounding the GST regime.
Though no bold steps have been taken towards the introduction of GST, a closer look at the Budget proposal reveals that a multitude of small steps have been taken towards aligning the current tax regime to the GST regime. Last year the levy of Swachh Bharat Cess was introduced at 0.5% on all taxable services as service tax, enhancing the effective service tax rate from 14% to 14.5%. Now, the current Budget seeks to impose Krishi Kalyan Cess at 0.5%, thereby further enhancing the effective service tax rate to 15%, which is inching closer to the estimated GST rate.
Another step towards GST has been widening the service tax base by way of pruning service tax exemptions. Service tax exemptions afforded earlier in respect of services provided by senior advocates to advocates or partnership firms of advocates and by a person represented on an arbitral tribunal to an arbitral tribunal have now been withdrawn.
Further, exemption on construction, erection, commissioning or installation of original works pertaining to metro, in respect of contracts entered into on or after 1 March 2016, is being withdrawn.
Additionally, keeping in sync with the pro-rural Budget this year, new service tax exemptions have only been introduced in sectors such as affordable housing construction, life insurance, general insurance business provided under ‘Niramaya’ Health Insurance scheme, etc.
In addition to the announcements related to GST, a lot of other expectations of the service industry from the Budget have been unmet. Prime Minister Narendra Modi recently introduced the ‘Start-up India, Stand-up India’ initiative to encourage start-up businesses. While there have been commendable reforms towards this initiative under income tax, the start-ups have been left with a lot to wish for with respect to concessions under service tax.