Budget 2018: While the Budget did not touch upon legislative changes required in IGST and CGST Acts, the fact that increase in customs duty rates would garner significant revenues, which would offset the decline in GST revenues, is undeniable.
Budget 2018: What stands out in the Budget is the fact that customs duty increase on a variety of products — this has been attributed to a desire to encourage domestic manufacturing — would contribute to shoring up indirect tax revenues, which have come under pressure on account of GST collections lower than expected. While the Budget did not touch upon legislative changes required in IGST and CGST Acts, the fact that increase in customs duty rates would garner significant revenues, which would offset the decline in GST revenues, is undeniable. The legislative changes required in GST would now possibly be introduced during the second half of the current session of Parliament. A calibrated departure is seen from the previous trend on reduction of customs duty, which was in line with WTO obligations. Basic customs duty on various products has been increased, which in the short-term could lead to cost-push inflationary pressures as the quantum of increase is quite significant.
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As a welcome move, there is a reduction in customs duty on solar tempered glass for manufacture of solar cells, cashew nuts and a rationalisation of the duty structure for refractory items, etc. For facilitating ease of doing business, welcome trade facilitation steps have been announced:
• Empowering central government to exempt goods imported for repair, further processing or manufacture from customs duty: This is a welcome move for reducing working capital burden on temporary imports.
• Empowering Board to prescribe regulations and trade facilitation measures for specified importers, exporters and products: This will ensure expeditious clearances and reduction in transaction costs for compliant businesses and important products.
• Provision for advance deposit for payment of custom duties for enabling quick clearance of goods.
Then there are measures for reducing litigation and enabling smoother dispute resolution:
• Pre-notice consultation in cases not involving mala fide intentions;
• Issuance of supplementary show-cause notice in specified cases;
• Definitive time-frame for adjudication of demand notices;
• Reduction in time-lines for pronouncing advance ruling;
• Facility to Commissioner (Appeals) to remand back the matters to original adjudicating authority in specified cases.
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Further, a new provision on reciprocal arrangement for exchange of information is also introduced.We have also seen an attempt to eliminate two cesses and introduce one new and larger cess. The education cess at 2% and secondary and higher education cess at 1%, both being levied as duty of customs on imported goods, have been abolished. In parallel, levy of social welfare surcharge is proposed on imported goods at 10% to finance education, housing and social security of the country. This would lead to increase in the effective cost of all imported goods. Certain products such as petrol, high speed diesel oil, silver and gold are subject to a concessional levy of 3% SWS.
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Road and infrastructure cess is proposed on import and domestic sale of petrol and high speed diesel oil to replace the existing road cess. The increase in this cess is commensurate with the reduction in the excise duty on motor spirit and hence this measure would not alter pricing at the retail level. Overall, the Budget appears to be driven by a desire to improve ease of doing business, encourage domestic manufacturing and garner revenues to overcome any shortfall on account of GST.
Partner, Deloitte India
(With inputs from Krupa Shah)