If there was one thing that was conspicuous in the finance minister Arun Jaitley’s speech on the Union Budget, it was the absence of any major indirect tax changes. Over the past few years, indirect tax changes have tended to dominate the Budget and it was, therefore, unusual that no major changes in indirect taxes were announced in the Budget.
While there are a few changes in excise and customs tariff, including an increase in rates of excise duty on cigarettes and exemption of PoS and biometric devices from all types of customs duties, there appeared to be a desire to avoid any major changes in customs, excise and service tax.
The expectation of tax experts, who had been predicting an increase in the rate of service tax to align it with the rate under GST, was also belied.
An unexpected, albeit welcome change is the abolition of the research and development cess (R&D cess), which was levied at 5% on the transfer of technology pursuant to a foreign collaboration agreement.
This cess was earlier creditable for service tax payers subject to a few conditions. The R&D cess has now been abolished and this would specially benefit those companies which were unable to offset the same against their service tax liability. The finance minister mentioned quite a few areas which indicated the government’s confidence in moving ahead with GST. In fact, the preparatory work on GST is being given the top-most priority, and several teams have been working on GST and are now giving it finishing touches. Also, the GST Council through its nine meetings has finalised almost all the issues and an industry outreach programme will begin on April 1, 2017, as per schedule.
While these announcements may seem more like a progress report, it was significant that the finance minister mentioned these and thereafter stated that considering the imminent move to GST, there did not appear to be any reason for making major changes in indirect tax. Since excise duty rates on goods would in any case be altered (in some cases, significantly) in the GST scenario, depending on the rate classification exercise currently under way, it is appropriate that no major changes have been introduced now as these would have been relevant for just three months.
The continuation of service tax rate at 15%, including cesses, could be on account of the fact that the government is considering introduction of multiple rates of GST on services, similar to the practice in case of goods, and hence may have wanted to avoid an across-the-board increase. It does appear that the government is extremely confident of introducing GST in July 2017 and hence wanted to avoid any interim changes. It is also important to bear in mind that the finance minister mentioned in the earlier part of the speech that GST was one of the two bold-play initiatives taken by the government and would also facilitate a more tax-compliant economy.
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Overall, it does appear that Budget 2017 has given a decisive thumbs up on GST and we should now expect an action-packed summer where all businesses will be gearing up for implementation of GST.