After a long time I am seeing an indirect tax Budget that is so positive that it is almost thrilling. It is because the purpose of this Budget is clear: to increase the ease of business and to allow for Make in India. At the outset of his Budget speech, Finance Minister Arun Jaitley made it clear that the thrust of the Budget proposal is, inter alia, on reducing litigation, providing certainty in taxation and simplification and rationalisation of taxation. The Budget has been drawn up towards that end rather than reducing or increasing the rates of duty of customs and excise on an item-to-item basis. The rates of duty have, of course, been reduced or modified to that end. This is quite a new approach compared to the previous ones.
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Reducing litigation
The Budget has clearly laid down that the government is moving towards a lower tax regime with a non-litigious approach. Litigations had unfortunately in the previous years spoiled the environment of tax collection. The Budget, therefore, has rightly emphasised that litigation is a scourge for a tax-friendly regime and creates an environment of distrust. To reduce the cases pending with the first appellate authority the Budget has proposed a new Dispute Resolution Scheme (DRS). Under the scheme, a taxpayer who has an appeal pending before the Commissioner (Appeal) can settle the case by paying the disputed tax and interest up to a certain date. The Budget has also proposed the creation of 11 new Benches of Customs, Excise and Service Tax, Appellate Tribunal (Cestat) to remove the backlog of cases. The monetary limit for deciding an appeal by single-member bench of ITAT (on the income tax side) has been increased from Rs 15 lakh to Rs 50 lakh. The Budget should have done it on the customs, excise side also for Cestat. Moreover, the increase should have been to Rs 5 crore and not Rs 50 lakh.
Certainty in taxation
The Budget has clearly expressed the view that "retrospectivity" in tax to create fresh tax liability would be avoided. This means there are technical amendments necessary with retrospective effect, which will continue. Though it has been said in the context of income tax, this would obviously be applicable on the indirect tax side also.
Ease of doing business
CENVAT Credit Rules, 2004 have been amended to improve credit flow, reduce the compliance burden in several aspects. In the 2014-15 Budget, a move was initiated to implement the Indian Customs Single Window Project. This Budget has proposed the implementation of this initiative at major ports and airports. Ad valorem duty has been introduced in Customs in several chapters like fish, animals and various other commodities that were bearing a specific rate of duty. The monetary limit for launching prosecution is being increased to Rs 2 crore for service tax evasion and the power to arrest is being restricted only to situations where the taxpayer has collected the tax but not deposited to the exchequer above the threshold of Rs 2 crore. This will lead to less harassment for taxpayers.
Make in India
Customs and excise duties have been reduced on certain inputs, raw materials, intermediaries and components so that to reduce the cost of manufacture in sectors like information technology, hardware, capital goods, defence production, textile, mineral fuels, chemicals, paper etc. A great move is the following: Those manufacturers who have multiple manufacturing units can now maintain a common warehouse for inputs and distribute inputs with credit to the individual manufacturing units. In order to improve skill development the Budget has given exemption for service tax on services provided by such skill development bodies. To promote the use of refrigerated containers, Customs and excise duty on them have been reduced to five per cent and six per cent respectively. Service tax exemptions have been given in respect of construction services to promote affordable housing in certain cases. Solar lamp is being exempted from 12.5 per cent of excise duty. Customs duty on certain types of electronic goods and hardware, textile fabrics, wood in chips or particles and chemicals and petrochemicals, which are used as inputs, have been reduced in some cases to cut their cost of production so as to make the final products in India.
Simplification of taxation
The Budget has abolished 13 cesses levied by various ministries in which revenue collection is less than Rs 5 crore a year. This will reduce multiplicity of taxes, associated cascading and cut the cost of collection. Jaitley should have removed all the cesses as that would lay the foundation for a proper goods and services tax.
Broadening of tax base
Several exemptions have been withdrawn to broaden the tax base. Exemption of service tax on services provided by (i) a senior advocate to an advocate or partnership firm of advocates providing legal service and (ii) a person represented to an arbitral tribunal are being abolished. Also exemption of service tax on construction, erection, commissioning or installation of original works pertaining to the Metro in respect of contract entered into after March 1, 2016, is being withdrawn. On several other items relating to transportation of passengers and goods also, the service tax exemption is being withdrawn.
The above proposals clearly establish one thing: It is not only the rate of duty but also the procedural simplification that contribute to creating a situation where Make in India or ease of business can be achieved. This Budget has addressed the problems of manufacturers and taxpayers in general by easing procedural hurdles like a huge number of pending litigations that are not decided for years and the rigid CENVAT Credit Rules.
What more could have been done
Having said all that, I must point out that a very large number of overdue reforms have not been attempted at all. The simplification of the Customs tariff is one such. At present, there are 19 rates in Customs duty like 150, 100, 85, 70, 65, 60, 50, 40, 35, 30, 25, 15, 10, 7.5, 5, 3, 2.5, nil and some specific duties. Then there are hundreds of exemptions and conditions and lists, which make Customs duty classifications quite complicated. There has been no move to do away with exemptions in a big way in Customs and excise and even service tax, which would have yielded a lot of extra revenue.
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
