Will Monday’s Budget notifications bring about greater rationalisation of duty rate structures and simplification of procedures to pave the way for the advent of the Goods and Services Tax regime by next year? and, also lower the uncertainties that taxpayers face at the ground level?
Simplification and rationalisation need not necessarily wait for the Budget time but over a period of time, the Department of Revenue has made it an annual exercise to look at some if not all the legal dispensations during this time and come up with a series of notifications removing at least some glitches. Unfortunately, many changes do bring in fresh complications and the latest trend is to retrospectively amend the legal dispensations, imposing unexpected tax liabilities. The trade hopes the changes will be fair and lead to simplification that will facilitate transparency, easier compliance and greater certainty.
An ‘exemption raj’ is a sure recipe for complications, discretions, documentation flaws and litigations. Is there any reason to have different Customs duty rates for capital goods — the normal 7.5 per cent, a concessional 5 per cent rate for project imports and zero duty for select projects (e.g. mega power projects) besides 3 per cent duty under Export Promotion Capital Goods (EPCG) scheme and zero duty for select sectors under EPCG scheme? Again, is there any point in having a 5 per cent duty on goods required for non-mega power projects and zero duty on mega power projects, when the contractors are able to claim even the 5 per cent duty as drawback under the deemed exports schemes through ingenious interpretations that are blessed by the commerce ministry? A better dispensation is to reduce the duty on all capital goods to 5 per cent or even 3 per cent and do away with all the exemptions.
How does a 4 per cent special additional duty on imports help, when it is exempted for most packaged products or can be claimed as refund after resale on payment of Value Added Tax (VAT) or taken as Cenvat Credit by actual users? Can funds not be allocated from the Budget for education rather than have education cess and secondary higher education cess that complicate the rate?
The government collected only 41.7 per cent of notional customs duties in 2009-10 compared to 44.6 per cent and 51.1 per cent in the previous years, with the proliferation of end-use based exemptions and revenue foregone under export promotion schemes soaring to over Rs 50,000 crore. While some of the export promotion schemes may have to be retained, the government can rationalise the schemes and lower the peak duty rates, simultaneously abolishing end-use based exemptions.
The government loses over 90 per cent of tax-related litigations in the tribunals and courts. There is scope to review the pending litigations and withdraw cases that the government is bound to lose anyway. A mechanism to hold officials accountable for frivolous litigation needs to be put in place.
It is well known that Indian industries suffer heavy costs due to poor infrastructure. While it takes a lot of time and money to improve the physical infrastructure, the soft infrastructure of rules and regulations can be reformed quickly and with very little cost. It will also reduce ambiguity, discretion and corruption at the operating levels. Hopefully, this year Budget will rationalise the tariff and mend the legal dispensations to make it easier for businesses to get on with their task of growth and employment generation.
Email: tncr@sify.com
