Slaps 0.5% farm cess on services, remains non-committal on time frame for GST rollout
Finance minister Arun Jaitley on Monday left the basic services tax rate untouched and desisted from offering any time frame for heralding the goods and services tax (GST) regime even though the April 1 deadline is all set to be missed. Nevertheless, he did a lot of tinkering with excise and customs duties and also introduced two cesses — one on all taxable services and the other on cars — aimed at widening the ambit of indirect taxes while promoting Make In India.
A 0.5% agriculture cess on all taxable services will effectively raise the service tax rate to 15% and bring it closer to the likely GST rate of 17-18%, said Gautam Khattar, partner (tax and regulatory services) at PwC. “Basically the finance minister has attempted three major things through this Budget: bringing the current taxation regime closer to the GST by streamlining credit mechanism and withdrawing exemptions; promoting the make in India concept through a rationalisation of duty structures; and improving the ease of doing business by simplifying procedures, as done under central excise,” Khattar added.
Thanks to these changes, cars, branded garments, locally-made mobile phones, air travel, aerated drinks, cigarettes and luxury watches are among the items that would witness a hike in prices, while consumers may find solar lamps, foot wares and routers getting a tad cheaper. To promote affordable housing, the government has scrapped a tax on construction services under the housing for all mission and the Pradhan Mantri Awas Yojana. However, the tax exemption on services provided by some legal professionals has now been withdrawn.
As in the past, people will find smoking not just damaging their health but also denting their wallets, as the government raised the excise duty on cigarettes and tobacco products, except bidis, by 10-15%.
Air travel is set to become dearer due to a hike in the excise duty on aviation turbine fuel (ATF) to 14% from 8%, apart from the additional Krishi Kalyan cess on taxable services. Consumers will also see a jump in prices of soft drinks and mineral water, as the finance minister proposed to raise the excise duty on water, including mineral water, “aerated water containing added sugar or sweetening matter” to 21% from the current 18%.
To promote Make In India, the government has decided to withdraw customs duties exemption on direct imports of specified goods by the central or state governments from Apri l. Even the customs duty exemption on specified goods imported by contractors of the central govenrment or even the PSUs being withdrawn. The government also sought to amend the Finance Act, 1994 to declare the right to use spectrum and its subsequent transfers a service so that it can be taxed.
The excise duty on branded readymade garments costing R1,000 or more has been hiked to 2% without CENVAT credit from zero earlier. The customs duty on imported imitation jewelery has gone up from 10% to 15% while that on industrial solar water heater has increased from 7.5% to 10% which will make these items costlier.
Giving a major boost to iron ore exports, the minister scrapped the export duties of 10% and 30% on fines as well as lumps, respectively, with fe content below 58%. “This move was much awaited as the sharp drop in global iron ore prices has eroded our margins. The removal of export duty will surely provide a big boost to iron ore exporters in Goa,” said Sesa Goa chief executive Kishore kumar.
However, Jaitley also imposed a 1% excise duty (without Cenvat credit) or 12.5% (with Cenvat credit) on gold jewellery after a gap of four years to contain demand. “As such, we are paying a 10% import duty on raw gold, while imports of finished products such as jewleery cost 15%. The excise duty will further raise costs for us and discourage jewellery making in India,” said Rajiv Popley, director at Mumbai-based Popley Group.
* Cars, branded garments, locally-made mobile phones, aerated drinks, cigarettes and luxury watches to get dearer
* The government has scrapped tax on construction services under the housing for all mission and the Pradhan Mantri Awas Yojana
* Air travel to become dearer due to a hike in the excise duty on ATF to 14% from 8%