Mr. Arun Jaitley would approach the third full-fledged union Budget of the present NDA Government on 1 Feb 2017 with the comfort of having achieved this important milestone.
The ninth GST Council meet on 16 January has achieved what most experts and sceptics had almost written off. Having successfully navigated a consensus between the State and the Centre on issues such as territorial waters, dual control and cross-empowerment, the Finance Minister also announced a ‘realistic time line’ of 1 July for GST implementation. Mr. Arun Jaitley would approach the third full-fledged union Budget of the present NDA Government on 1 Feb 2017 with the comfort of having achieved this important milestone.
From an indirect tax perspective, it appears that the theme of phasing out of existing central excise exemptions could continue in Union Budget 2017 as well. The possibility of increasing the service tax rates to align the same with a possible 18% GST rate for most services could be on the cards. Any tweaking of rates of goods under central excise and customs could potentially offer insights to the thought process of the Committee working on categorising goods and services under the proposed GST rates of 0%, 5%, 12%, 18%, 28% and 28% with cess. Addressing concerns over inverted duty structure to boost “Make in India” could also be continued with.
Keeping an eye on the proposed GST regime, the Union Budget could focus on a robust dispute resolution scheme to weed out customs, central excise and service tax cases at the CESTAT level. Given the number of such cases pending at the Tribunal, the Government could stand to gain from such a scheme, the only rider being that it should be structured in such a manner so as to entice the Trade to lap on to such an opportunity and pay legitimate dues without continuing with litigation.
On the GST implementation front, there are many moving pieces to be plugged, both from the Centre and States in the coming months. The Model GST law would need to be finalised after vetting by the Law Ministry and approval of the GST Council thereafter, so that the CGST Bill and IGST Bill can be placed for approval before the Parliament at the earliest. Only then can the states take up the motion of passing the respective SGST laws. The GST law would also need to be supplemented with the GST Valuation Rules, Registration and Input Tax related rules, notifying the jurisdiction and identifying the jurisdictional officers, etc. Another key aspect would be the readiness of the GSTN which is crucial for the GST compliance process. Migration of existing registrations to GST is work in progress and there has to be a concerted attempt to increase its pace.
The sharp increase in the quantum of compensation to the states and managing the same vide tax collection in the GST regime would be on the radar of the Government. The Committee of officers of the Centre and State Governments, which has been constituted by the GST Council for fitment of goods and services in different rate slabs would need to complete the exercise including identifying the goods and services which could attract Cess. Addressing the above requirements and other relevant aspects would be challenging for the Centre and States, especially to achieve finality within the next couple of months.
From an industry standpoint, there is a necessity to have a road map on GST from the Finance Minister in the Union Budget which lays down the way forward from hereinafter. Industry would also need sufficient time to work on their ERP systems to ensure there is no business disruption on the GST go-live date. The next GST Council meeting is slated for 18 Feb, which could mean the approval of the CGST and SGST Bill cannot take place before this date.
Apart from the above, Union Budget 2017 would be a landmark Budget in its own right. Since the President of India has given his consent, this Budget would see the merger of the rail budget with the Union Budget. The traditional convention of presenting a separate railway budget which started in 1924 would thus end with Union Budget 2017. Also this could potentially be the last Budget where the changes to rate of goods / services, tweaking of law etc. are kept confidential and released only during the Budget Speech by the Finance Minister. If GST gets implemented this year, then the changes in law / tax rates of goods and services / granting exemptions etc. would be in the domain of the GST Council. This could thus mark a major deviation in the related processes followed till date.
Given the impact of ‘demonetisation’, the announcements by the Finance Minister in the Union Budget 2017 would be closely watched by the nation and the world at large.
(Authored by Suresh Nair, Tax Partner, EY India. Nikhil Mehendale, senior tax professional, EY also contributed to the article. Views expressed are personal)