Budget 2020: Given the current economic situation, all eyes are now on the budget day, hopeful for some measures that can take the economy to the $5-trillion level by FY 25.
By Gautam Khattar
Union Budget 2020 India: The finance minister will present her second budget on February 1, 2020. While there are high hopes in terms of reduction of personal tax rates, ease of doing business, and other economic measures,the FM may have limited flexibility to dole out a big munificence.
A sneak peek into the bygone year indicates that both the government, and India Inc have had to walk a tight rope given the varied economic parameters. The GST regime which has successfully outgrown its infancy seems to be battling issues like unachievable revenue targets, false credit claims, and contradictory advance rulings across states, leading to varied interpretations of the provisions. The rate reduction on various goods and services, and deferment in annual return/audit report along with other compliance deadlines have contributed to reduced GST revenue collections. Withdrawal of clarifications on critical aspects such as GST treatment of intermediary services, discounts, and other promotional schemes offered by companies has created ambiguity within the trading fraternity. Also, for exporters of services, the delay in release of GST refunds has led to blockage of funds.
By end-2019, the WTO ruling has put a question mark on various export incentives (including MEIS, SEZs, EOU, and the EPCG schemes), which are inconsistent with the WTO’s global trade norms.
Thus, there are expectations the budget will offer a stimulus package to boost consumption and GDP growth.
While, the GST Council will take decisions around GST, India Inc will look forward to budget announcements on measures such as electronic invoicing, and new return system, which are proposed to be implemented from April 2020. Further, certain provisions under GST law should be reframed to avoid potential disputes. These include levy of GST on common functions between distinct entities, and on free services. The credit provisions should be revised to allow seamless flow of credits, e.g. input tax credit on construction services needs to be amended to allow tax credits where the constructed facility is used in the course/furtherance of businesses like the real estate or hospitality industry.
The government introduced the Sabka Vishwas Scheme in the last budget to settle pending excise and service tax disputes. This received an overwhelming response from taxpayers. Similar schemes should be considered in the upcoming budget to cover all pending customs disputes under the erstwhile central indirect tax laws.
As a trade facilitation measure, and for faster disposal of pending matters, the government must constitute a separate advance ruling authority for customs related matters. At present, the advance ruling is playing a dual role for matters under customs as well as those under income tax. There is a substantial back-log on the application filed before the advance ruling authority.
Further, the AEO status holder—AEO-T2 and AEO-T3—from a policy standpoint, have been provided with the facility to paste MRP tickers on the importer’s premises. However, this has been a challenge to implement on the ground, on account of the enabling provisions under the Customs Act. Hence, an appropriate amendment or suitable instruction needs to be issued to allow such AEO status holders to avail the benefit of pasting MRP stickers in their premises.
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Looking at aspecific industries, namely telecom and automobile, the expectation is to bring about clarity on classification of parts of telecommunication networking equipment. This will help avoid the ongoing disputes on account of reduced customs duty of 10%/nil. While last year’s budget offered series of concessions, including nil customs duty on parts used for manufacture of electric vehicles (EVs) to incentivise the automobile sector, as per the Phased Manufacturing Program (PMP), there is a proposal to move away from this exemption from customs duty on parts of EVs by April 2021. This exemption should continue for a longer period to promote manufacturing of EVs in India.
With the current economic situation, all eyes are now on the budget day, hopeful for some bold measures that can bring the economy back on track, and take it to the $5-trillion level by FY 25.
The writer is Partner, Indirect Tax with PwC India. Views are personal.
With contributions from Kishore Kumar, Director, & Ashima Agrawal, Senior analyst, Indirect Tax, PwC India