For today’s Budget to be a success, attention has to be given towards solving existing issues fettering the industry such as ambiguity in indirect tax provisions and mitigating complex compliance procedures required to be followed by taxpayers. The reforms in the indirect tax regime are expected to be bold in nature.
Introduction of GST
A considerable delay in GST implementation has been encountered on account of impasse between the central and state governments and there is a need to arrive at a consensus. So, a clear GST roadmap is needed.
A recurring challenge in indirect tax is that of ‘double taxation’ on a single transaction. The challenge exists not only between the central and state levies of service tax and VAT, but also amongst the three levies operating at central levels—customs, excise and service tax. For example, the transaction of licence to use software could attract service tax as well as VAT. Further, both service tax and customs duty could be applicable on payments related to intangible rights such as royalty. The government should issue a clarification to remove the tax dichotomy.
Inverted duty structure
There is an inverted duty structure, under which finished goods are taxed at lower rates than raw material, for items like desktops and smart cards as compared to parts required for their manufacture. The said structure not only results in a perennial excess credit situation, but also encourages direct import of finished goods, hampering the indigenous manufacturing sector. Steps are expected to ensure rationalisation of taxes on inputs/raw materials.
The SEZ policy
The objective of the SEZ policy is to provide tax incentives to the developer/SEZ units, thereby attracting foreign investment. However, certain challenges are faced by SEZ units. For example, ab initio exemption from service tax is available to SEZ units in respect of services that are exclusively used for authorised operations and are covered in the default list of services. But in cases where certain services are partially used for authorised operations, an SEZ unit may take recourse of claiming refund. It is suggested that all services that are exclusively used for authorised operations of SEZ unit may be ab initio exempted without the procedural requirement of obtaining default list of services from the specified officer of SEZ.
The Authority for Advance Rulings has been set up for reducing potential litigation. An application for advance ruling may be filed by a non-resident setting up a JV in India in