The tax proposals made by the finance minister are, in his own words, driven by goals of clarity in tax laws, a stable tax regime, a non-adversarial tax administration and a fair mechanism for dispute resolution. Given the extant economic environment, the minister also had the unenviable task of walking a tightrope between controlling the fiscal deficit as well as inflationary trends, and incentivising the growth potential of the economy.
Consequent to the above, the indirect tax proposals appear to be focused on the finer nuances rather than big-ticket changes. While the peak rates under customs, excise and service tax have remained unchanged, the penal and recovery provisions under all these taxes have been significantly strengthened. Specifically for service tax, it is important to take note of the reintroduction of the imprisonment provisions. For example, if service tax amount exceeding R50 lakh is collected, but not deposited into the government treasury beyond a period of six months, it can now attract imprisonment between six months and seven years.
Further, expansive powers of arrest have been introduced under service tax. It is sincerely hoped that detailed instructions are issued by the CBEC to ensure adequate checks and balances vis-a-vis the aforesaid powers in order to prevent misuse.
In a major development, a one-time voluntary disclosure scheme has been announced under service tax by way of waiver from interest and penalty as well as immunity from prosecution to taxpayers for the period between October 2007 and December 2012.
This would, however, be available only for purely voluntary disclosures and would not cover taxpayers against whom inquiry or investigation for short-payment or non-payment of service tax has been initiated in any form by the government. This scheme can be effectively used by taxpayers to mitigate exposure vis-a-vis various aggressive tax positions and non-disclosures.
The ambit of customs exemption available for aircraft maintenance, repair and overhaul industry has been significantly enhanced and should go a long way in incentivising this industry. Given the criticality of the leather sector from an export perspective, customs duty concessions have been provided towards import of a wide range of machinery for manufacture of leather and leather goods, including footwear.
However, it is worth pointing out that this Budget thoroughly disappoints when one notes the myriad positive steps that could have been introduced. While there was a lot of expectation that certain key ambiguities under the new service tax regime would be clarified, no steps have been taken in that respect. Issues pertaining to inverted duty structure in certain sectors, drawback vis-a-vis services, excise valuation owing to the Fiat decision have not been dealt with and would continue to trouble taxpayers.
Overall, vis-a-vis indirect taxes, this was a Budget of small, incremental steps and missed opportunities ? a lot more could have been done, at least to ensure clarity in applicability of taxes.
