Budget 2022 must continue to provide an impetus to domestic market

Finance Minister Nirmala Sitharaman (file image)

With the ongoing COVID-19 third wave, all efforts are on to prevent the economy from falling back into a calamitous slump similar to the one witnessed during the second wave in early 2021.

In the previous financial year, the Government of India had taken several steps by announcing various Production Linked Incentive (PLI) schemes and relaxations under the GST regime to promote India becoming a manufacturing hub, and sustain growth of the industrial landscape. It is anticipated that this year, the government would make significant reforms in its fiscal policies. The indication of the future direction of the government should first be evident in the Union Budget, the timing of which also would allow businesses to make informed decisions for the next financial year.

Also Read: Budget 2022 coverage

Customs

Like previous years, it is expected that the central theme of Budget 2022 would continue to provide an impetus to the market to boost it for domestically-manufactured goods to reduce import dependency, and promote the ‘Make in India’ initiative. For this, the budget would have to emphasise on improving cost-effectiveness, and vitalising local value addition.

Various industries are expecting rate rationalisation across the value chain. However, given the inclination of converting India into a manufacturing hub, it is expected that rate rationalisation would occur only at the raw material stage, and not at the subsequent stages.

The metal industry is struggling with surging input costs. To provide some respite, the Budget may announce certain stimulus packages for this industry, or a reduction in customs duty on steel, aluminium, copper, etc. Moreover, the COVID-19-affected sectors such as hospitality, travel and tourism, etc. are in dire need of concessions. Concession on certain key capital expenses such as air-conditioning equipment, beds, mattresses, furniture, etc. are expected.

The agriculture industry is facing tough competition from importers due to nil or preferential rate of duty on import of fruits or vegetable from countries having free trade agreements (FTAs) with India. As the domestic producers are unable to receive reasonable returns for their investment, they’ve demanded an immediate review of these FTAs.

In addition to customs duty rationalisation, customs duty benefit, and faster clearances for the healthcare sector is imperative.

The budget proposal could also announce a simplification of import procedures such as relaxation on rules of origin, manufacturing compliances under warehousing regulation, digitisation, automated population of forms, virtual assistance for identifying correct classification, and harmonisation of customs processes on ice-gate portal that are in line to GST network portal.

It is also an important time for the government to identify and earmark some specific sectors and provide relaxation so that such sectors become the flag bearers for the future similar to what the information technology sector had been for the last few decades.

Reforms in the customs administration for achieving the long-term growth goals would be expected from the upcoming Budget.

SEZ

The government has also been witnessing the de-notification of SEZ areas due to poor market response, lack of demand for space, and reduction in the fiscal incentive available for SEZs. The SEZs have been forced to develop a market for their products in domestic tariff areas for their survival during the pandemic.

The government has taken active steps for promoting the IFSC in Gift City by introducing income tax concessions, continuing customs and GST-related benefits to IFSC, allowing leasing of aircraft on payment of GST on forward charge basis, etc.

An overhaul of the SEZ legislation is expected along with the focus on reduction in compliances, providing new fiscal incentives and reducing duty on clearance of the SEZ products into the Domestic Tariff Areas (DTAs). This could retain the present SEZ users, and help in bringing more foreign investors / companies to set up their operations in the SEZs. Such amendments are imperative to anchor the survival of SEZs.

Amnesty Scheme

An amnesty scheme may also be announced for customs and GST matters to reduce the burden on tribunals and courts where the pendency has increased manifolds due to disruption in operations due to the pandemic. Currently, several customs matters pertaining to valuation, classification, interpretation issue, short-payment of duty, imports without license, are pending for adjudication at different levels.

Similarly, several new taxpayers are unaware of the nuances in the initial years of GST and may have committed certain errors. This would also provide an opportunity to honest taxpayers who have committed certain mistakes, and would provide them a clean slate in operation of business. Thus, announcement of amnesty would have dual purpose, i.e. to reduce tax litigation, and promote ease of doing business.

The parameter of this new scheme may be similar to the Sabka Vishwas scheme, which was launched in 2019 for service tax and central excise matters. The scheme was a huge success as several taxpayers were able to reduce the unwarranted baggage of litigation. The new scheme may envisage the waiver of 50 percent alleged liability of tax amount along with interest and penalty.

Conclusion

The COVID-19 third wave has created clouds of ambiguity on the scope of upcoming budget. However, it is hoped that no drastic amendment is suggested that may have catastrophic impact on industries. The government appears to be very focused in converting India to manufacturing hub. Increasing customs duty has always been the sword used by government to cut down the import dependency of any particular sector. It also helps in refuelling the domestic manufactured goods demand, creating job opportunities, and growth of Indian economy.

(Shivam Garg, Senior Associate at Cyril Amarchand Mangaldas contributed to this article)

SR Patnaik is Partner and Head – Taxation, Cyril Amarchand Mangaldas. Views are personal, and do not represent the stand of this publication.