The Union Budget will be first opportunity for new government to showcase its policy thrust from an economic perspective. The expectations are huge and the Finance Minister is tasked with the unenviable task of igniting growth, encouraging investments and controlling inflation while keeping a close watch on fiscal prudence.
Indirect tax expectations have to be aligned to the above realities for India to achieve these desired objectives. Also my expectations are more on the broad issues required to ease overall indirect tax burden and spur growth.
At the outset there is a need to provide some clarity around the roadmap for implementation of Goods and Services Tax (GST) which if implemented can without a doubt provide the much needed fillip to our ailing GDP growth. Though one can argue that the government has had very little time to grapple with the issues that’s plagued this important reform, nothing less than an announcement of its commitment to introduce early GST and clarity on its roadmap is expected. GST can be the ideal panacea for igniting manufacturing and exports through increased competitiveness of the Indian industry. Forging a consensus in a fractured and federal polity like India, we understand is difficult but we have far too many years in trying to implement this critical indirect tax reform. If this government with its majority and idea of decisiveness cannot implement in its initial years, we would lose another window of opportunity.
Manufacturing is a sector that needs immediate attention something that the government is acutely aware of; the welcome continuation of the excise stimulus provided in the interim budget for automotive and other sectors is a clear indication of that intent. But more needs to be done, in my view another important step would be the amendment in the excise law to overcome the Apex court judgement in case of an auto major to avoid prolonged litigation and uncertainty. An inverted duty anomaly along the value chain is another area which needs to be corrected every year to incentivise manufacturing.
Cenvat credit chain is another major area of concern for the industry. Though we have moved over to the Negative list regime in Service tax, the cenvat credit rules, both for manufacturers and service providers, continues to remain largely restrictive. This results in trapped taxes and duties impacting the competitiveness of Indian industry besides unnecessary litigation. As a precursor to GST, it is important to tweak the cenvat credit rules to allow credits for all inputs, capital goods and input services used in business without restrictions. There can be a potential loss in revenue in the interim but will a long way in easing business and reducing costs both of which can act as a catalyst to improve sentiments.
Various sectors may have their individual expectations on reduced duties and exemption, but one has to temper these as the government has very limited elbow room. It is therefore important to focus on broad reforms which will help large sections of the industry and provide the much needed relief.
Another area of critical importance, though unconnected with the Budget, is the area of dispute resolution. Tax disputes at large including indirect taxes has shown a tremendous surge in the last few years. This has created a serious doubt in the minds of the industry regarding the certainty of our tax system.
The recently released Tax Administration Reform Commission (TARC) report captures this serious flaw in the most candid and lucid manner with excellent recommendations for future correction. These protracted litigations have seriously dented the credibility of our country and its tax administration and needs immediate attention. Media reports suggest that the government is aware of this serious issue, but what would be most effective will be a statement by the Finance Minister of the government’s intent to change this environment. A statement that the government and the revenue administration will seriously study the TARC report and implement the recommendations as appropriate and in a specific time period will go a long way in signalling the change in mind set.
– By Harishanker Subramaniam, Tax Partner & National Leader – Indirect Tax Services, EY
(Views expressed are personal)