Budget 2018: As a harbinger to the Budget 2018, though there were many expectations with respect to Indirect taxes, nevertheless the importance of the annual Budget was fairly reduced from an indirect tax perspective in the aftermath of implementation of GST. Majority of decisions with respect to GST are to be taken by the all-powerful GST Council. Undoubtedly, the Government was faced with arduous task of balancing a people friendly budget with one that perpetuates the fiscal consolidation path of the NDA Government. With the stage thus set, the Finance Minister, Mr. Arun Jaitley presented the last full budget of this term on 1 February, 2018.
On the Indirect Taxation front, the focus of Budget 2018 was primarily on customs duty. With an ambitious target of 3.3% fiscal deficit set for FY 2018-19, the finance minister has tried to achieve twin goals of increased revenue collection and providing the much needed impetus to ‘Make in India Policy’. Unlike the previous budgets, where the thrust was primarily to reduce the customs duty rates, this Union Budget seemed to reflect an apparent effort on Government to cater to the common long pending demand of the domestic manufacturing sectors for providing duty protection to support the vision of making India a manufacturing global hub. Thus, a favourable duty environment seems to be created for domestic value addition in sectors, such as food processing, electronics, auto components, footwear and furniture.
Telecom, mobile and electronics sector is undoubtedly a key thrust area to support the Prime Minister’s ‘Digital India’ and ‘Make in India’ initiative. In view of the increased manufacturing in the mobile phone sector, Budget 2018 created further incentive for manufacturing in India by proposing to increase the rate of customs duty to 20%. With the objective of job creation, Finance Minister has also endeavoured to shift the industry’s focus from being a mere assembly hub to creating an entire ecosystem of manufacturing activities in India by increasing duty rates on battery and chargers along with certain other parts and accessories. With such high duty differential on manufacture vs import, there would be a need to have increased vigilance to avoid the re-emergence of grey market.
Watch: Union Budget 2018: Jaitley Recognises MSMEs As ‘Engine Of Growth, Employment’
To continue its focus on manufacturing in the consumer durable segment customs duty rates on Panels for LCD, LED TVs, together with other parts have been increased. Similar rate hikes have also been made in case of products like wrist watches, toys, video games, sports equipment to discourage import of such items.
Income Tax Calculator: Find out how Budget 2018 will impact your finances
One other sector that has been the focal point of attention under Budget 2018 is automobile sector, primarily on account of its enormous employment generation capability. To boost domestic manufacture of automobile parts, duty rates have been hiked from existing 7.5/10% to 15%. Moreover, Government has also sought to discourage import of vehicles in semi-knocked form for assembly in India by increasing the duty rate to 15%. The Government also seeks to levy an additional duty of customs viz. Road and Infrastructure Cess on import of goods, for the purpose of financing infrastructure projects.
Watch: 10 New Facts On The Indian Economy
To fulfil the Government’s commitment to provide for finance for education, health and social security, Budget 2018 has introduced a 10% Social Welfare Surcharge in lieu of Education and higher education cess on import of goods. While the rate of this surcharge has been kept at 10%, products that were earlier exempt from education cess continue to be exempt from this new levy as well, besides providing for a concessional surcharge rate of 3% for gold and silver. Imposition of another cess is a departure from the Government’s intention of minimising multiple taxes in the aftermath of GST implementation, more so as this shall apply on all products and increase effective duty.
Though, Budget 2018 can be considered at par with the industry expectations in terms of thrust of important Government initiatives like Make in India, it is likely that Government would pitch to further make key decisions on the GST front in upcoming GST Council meeting to ensure a friendlier environment for businesses.
(The author is Kunal Chaudhary, Tax Partner at EY India. Views expressed are personal)