By Rajat Mohan
On February 1st, 2021, Finance Minister Nirmala Sitharaman in her third Budget speech, announced no changes in tax slabs for individual taxpayers at the direct tax front, which will give stability to the overall tax structure. On the other hand, a large number of items will now become dearer due to a hike in custom duty rates, and at the same time, some will become cheaper due to customs duty rationalization.
Taxpayers will have to pay more for certain items such as Chargers, Mobile phones, Boring Machine, leather, cotton, silk, alcohol, and others due to a hike in custom duty rates. However, certain items such as steel & alloy products, Copper scrap, nylon chips, nylon fiber, gold, silver, and others will see a rationalization of custom duties.
Threadbear discussion around as what may see a change in prices for a retail customer are as given below:
There is an instant need to develop the agricultural sector to produce more, sell more, and earn more. The customs duty rate on Cotton, Cotton waste, De-oiled rice bran, Silk yarns, etc. has been hiked in view that the domestic market of such items will raise and generate revenue for the farmers. However, in short run, this step will push the prices of such products as the compensatory increase in production will take atleast an agricultural cycle to respond to the said changes.
Specified auto parts like ignition wiring sets, safety glass, parts of signaling equipment, etc will also a see a steep rise in customs duty with the intent of promoting the domestic production for these items. From now on, purchasing these items from the foreign market will be costlier for the importers. This will lead to an insignificant increase in the auto-industry costs that the businesses may not plan to roll over to the final customers.
We are aware of the fact that solar energy has enormous potential for India. Building up and promoting domestic aptitude/ production custom duty rates has been raised for Solar Inverter & Solar Lanterns. Besides, exemption to all items of machinery, instruments, appliances, components or auxiliary equipment for initial setting up of solar power generation project or facility has also been removed as of now. Theoretically speaking, it seems that said withdrawal of benefits for solar energy is not a green initiative. However, little research would tell us that Indian government had an initial target of 20 GW capacity for 2022, which was achieved four years ahead of schedule. State of Karnataka, Rajasthan, Andhra Pardesh and Telengana are the front runners in the solar energy initiative. Solar inverters have now practically reached the grass-root level atleast in urban society, and rising import duties on the same would not arrest the momentum of the same.
Alcoholic Beverages like Vermouth, wine of fresh grapes, Cider, Perry, Mead, sake, Brandy, Bourbon whiskey, Scotch, etc. are one of the most consumed commodities in our country. These commodities have comparatively inelastic demand, thereby increasing custom duty rates will generate substantial revenue for the government and also help in the growth of the economy.
Anti-Dumping Duty and Countervailing duty is being temporarily revoked for the period commencing from February 2, 2021, till September 30, 2021, on imports of certain specified items from a few countries like Republic of China, Brazil, Germany, and Vietnam. These products on which duties have been revoked include Straight Length Bars and Rods of alloy-steel, High-Speed Steel of Non-Cobalt Grade and Flat-rolled product of steel, plated or coated with an alloy of Aluminum or Zinc. Anti-dumping duty on Cold-Rolled Flat Products of Stainless Steel of width 600 mm to 1250 mm and above 1250 mm of non-bonafide usage imported from Republic of China, Korea RP, European Union, South Africa, Taiwan, Thailand, and the United States of America has been discontinued upon expiry of the anti-dumping duty hitherto.
Per se no explanation has been offered for the said withdrawal of anti-dumping duties, however, it is believed that it would have been done in order to control the sudden spike in domestic prices of such raw material, which are indirectly hitting the job-creation in small and mid-sized manufacturing companies. Although businesses are expected to question the government’s geopolitical stand on banning Chinese apps on the one hand and easing bulk trade in select stainless steel categories on the other to favour Chinese companies, wherein unfair trade practices have been proved in 2017 itself.
Any imposition of new cess is always to be viewed with caution. The government has introduced ‘Agriculture, Infrastructure and Development Cess’ on import of few specified goods, including Gold bars, Silver bars, Alcoholic beverages , Crude palm oil, Crude soyabean and sunflower oil, Apples , Coal, lignite, Specified fertilizers, Bengal Gram/Chick peas. Although the government has promised that there would be no additional burden on the consumer on most of these items, as they have reduced the equivalent customs duties on such products.
Goods & Service Tax (GST) is operating in its fourth year, and it has been observed that no GST tariff-related changes have been made in the budget introduced, yet while many variations have been made in the Custom duty rates. This year the budget was aimed at boosting incomes of the MSME Sector and small taxpayers, especially startups and enhancing purchasing power. Due to the worldwide pandemic Covid 19, the economy is still on the sliding ledge.
Starting July, a resilient V-shaped recovery is well underway, as demonstrated by the recovery in GDP growth and the sustained resurgence in important indicators like power demand, E-way bills, GST collection, infusion of FDI, steel consumption, etc.
Now is a high time when government should work on rationalizing the GST tax rates too. It may start with merging two different tax slabs of 12% and 18% into a new category of 15%, which was also pegged as the revenue-neutral tax rate by the Chief economic advisor before the implementation of GST in 2017.
(Rajat Mohan is a Senior Partner at AMRG & Associates. The views expressed by the author are his own.)