A tax policy driven by predictability, simplicity and consistency would be a beacon to the investors, essential for the success of the Make-in-India story.
The Make-in-India initiative is designed to facilitate investments, foster innovation and build best-in-class manufacturing infrastructure in the country. Towards meeting it, several economic and fiscal reforms need to be aligned to the initiative. On the fiscal front, the government should push harder to make tax policies more predictable and consistent and provide stable and transparent tax administration in line with global best tax practices. Tax reforms need to resonate with the concept of Make-in-India. The direction of indirect tax reforms has been to consolidate and rationalise multiple central and state taxes. This alone may not be sufficient to make the country attractive for investments if the fundamental principles of tax policy are not imbibed in the reform process.
Considering the rapidly growing global trade, capacity building in customs is the need of the hour, owing to the rise in transaction volumes between MNCs and complexity in global supply chains. The need is specifically felt in handling RPTs from the perspective of customs valuation. The current mechanism of assessment by the Special Valuation Branch (SVB) has been far from satisfactory and has resulted in huge pendency in SVB cases. The requirement of Extra Duty Deposit (EDD) has been an irritant and is compounded by the fact that it is being routinely increased from 1% to 5%, attributing delays in submission of information to the importer. Clearly, EDD appears to serve little purpose and the expectation would be to dispense with such regressive provision. The assessment procedure also needs to be codified in the rule book instead of being driven by circulars and public notices. The concept of SVB appears to be unique to India and perhaps assessment of RPTs could be handled as part of post-clearance audit with focus on valuation-related risks.
CenVAT credit restriction on eligibility of credit on tax paid on input service for setting up of a business acts as a deterrent to businesses and goes against one of the objectives of Make-in-India. The time limit of six months introduced for availing of CenVAT credit on inputs and input services is perceived to be regressive. Such provisions should to be dispensed with and, to the extent possible, the credit chain should be maintained. Besides, recent pronouncements on reversal of credit on capital goods in case of change in ownership of a manufacturing facility without physical removal poses a challenge to merger and acquisition landscape. Clarity should be brought in such cases where legal interpretation creates unintended hurdles.
With the withdrawal of benefit of free transfer of CenVAT credit, the concept of LTU has taken a back-seat, with a question as to why a taxpayer should register with LTU. The underlying concept behind Make-in-India is also to promote balanced economic development of different regions of the country. Thus, an entity with a larger geographical footprint needs to be encouraged through the LTU mechanism to freely transfer credit across its manufacturing locations. The expectation, thus, would be to restore this benefit with necessary safeguards, if required.
Delayed refund for service tax has been the ire of service exporters. Mandatory timelines for disposal of claim with full automation (similar to duty drawback claims through EDI) across all jurisdictions and mechanism for online tracking of status may be introduced.
The indirect tax dispute scenario in the country is marred by infructuous demands as well as non-resolution in a timely manner. Getting a handle on dispute management is crucial for retrieving stakeholder confidence and generating positive business environment. Mandatory timelines may be introduced for adjudication of service tax and central excise cases, otherwise the proceeding should lapse in favour of taxpayers. A special scheme or taskforce could be put in place to review pending disputes at all forums and tag similar cases for speedy resolution.
A tax policy driven by predictability, simplicity as well as consistency would be a beacon to the investors, which is essential for the success of the Make-in-India story.
The author is partner, Deloitte in India.