Indirect tax: major reforms that need clarity in the budget

Bipin SapraEY

The NDA government came to power with promises to bring in reforms to boost Indian economy. The upcoming budget will be the NDA Government's first full-year Budget, which is expected to lay the foundation of Prime Minister Narendra Modi`s `Make in India` scheme. Thus, India Inc. eagerly awaits for the budget proposals for FY 2015-16. Further, tax proposals being the cardinal focus in budget sessions would be seen closely by all stakeholders. Considering multiple anomalies surrounding indirect tax environment, the industry is having big expectations from the new government to resolve the same in the upcoming budget.

The biggest point of consideration with the industry is introduction of GST, which is seen as a major tax and business reform. The government currently has taken up an aggressive target date of implementing the same by April 1, 2016. However, the bill is pending to be passed, and no instructions have been issued on the structure, draft, scheduling of implementation and procedural aspects of the law rendering lack of clarity among the assessees. Therefore, it is imperative that the government provides a clear line of sight in the budget for the draft structure of the statute enabling the assessees to commence preparation for the same.Certain key sectors are facing the issue of inverted duty structure largely on account of Special Additional Duty of customs (SAD) culminating in unutilized credits sitting in books. As a policy reform, the government should consider providing an exemption from SAD through upfront exemption route or refund scheme. Alternatively, SAD may be brought down from 4% to 2% to bring it in line with the existing CST rate.In order to boost the domestic manufacturing in line with ‘Make in India’ campaign, the government should alter the import duty structure of inputs and finished goods to enable domestic manufacturers become cost competitive.From the perspective of promoting overall development of economy, service tax benefit as available to construction of airports, ports etc. should also be extended to other key sectors of economy such as power and telecom sector. Further, the existing service tax benefit against construction activities should be protracted to management and maintenance activities as well.The current tax regime poses challenges to the industry due to various ambiguities relating to availability of CENVAT credit against certain goods such as steel structures (towers, shelters etc.) as inputs/ capital goods etc., goods and services used at R&D centres located outside factory etc. Further, the CENVAT credit rules are restrictive in nature disallowing credit against services of construction, renting of vehicles etc. which are used actually used for providing output services. As these issues have led to additional cost burden on the industry, the government should consider amending the credit rules to allow credit of all inputs, input services and capital goods used in provision of output services or manufacture of goods, and the restrictions should be done away with. In the previous budget, a restriction was introduced that cenvat credit can be availed within six months of the date of invoice. From the perspective of larger business operations, this amendment effected in loss of significant amounts of credit, as owing to operational issues such business entities, practically, are unable to capture all the credit within stipulated period of six months. The industry forums have made multiple representations with the ministry seeking removal of the restriction or extension of time period. Therefore, in the upcoming budget, the government should resolve this issue by either extending the time limit to 12 months, or removing the restriction altogether.

As a measure to support the ailing real estate and also benefit the lower sections of society, the government can provide service tax to construction of affordable housing sectors.There are multiple issues concerning valuation of goods and services in composite contracts, resulting in duplicity of taxes on the same amount, and numerous litigations at all levels. Since these issues have been prevalent for a long time, it is imperative that appropriate valuation principles are laid down to put these issues to rest.Even though the industry expectation from Union Budget 2015 would be to resolve all the anomalies prevalent in indirect tax law, it is unlikely that it would be fulfilled entirely. It is believed that most of these issues may get addressed under GST regime, resulting in simplification of tax law and reduction in compliance procedures. Thus, providing clarity on the aspect of GST implementation would go a long way to provide some degree of comfort to the industry.

(Views expressed are personal)