While the indirect tax proposals aim at creating a taxpayer friendly environment, it appears that the Government has stopped short on taking affirmative measures which could have provided impetus to investments in key sectors and eased the burden of GST on the end consumers.
The tax proposals contained in the Union Budget recently tabled before the parliament largely aim at bolstering domestic manufacturing, improving ease of doing business, reducing litigation and providing certainty in tax administration.
On the Import duty front, the emphasis is to boost domestic manufacturing, in line with the 'Make in India' and 'Aatmnirbhar Bharat' initiatives through rationalization of the Customs duty rates. Keeping in line with these objectives, certain exemptions are extended till March 2026 and 2029 respectively, whereas certain others are allowed to lapse on September 30, 2024. The rationalization of import tariffs is expected to continue further with a comprehensive review of the tariff structure announced to be undertaken in the next six months.
On the specific proposals, reduction in duty rates on mobile phones including their parts and accessories are aimed at incentivizing domestic manufacture as well as reducing prices for the end-customers. Exemptions extended to precious metals (gold, silver, platinum) along with ores and concentrates of copper, cobalt, tin and tungsten etc. as well as silicon to boost investment and manufacturing in the related sectors. In the healthcare sector, exemptions have been extended to certain life-saving drugs used for cancer treatment and polyethylene used in orthopaedic implants.
For the renewable sector, basic customs duty is increased on solar glass for manufacture of solar cells from Nil to 10%. This is neutralized by providing exemption on certain capital goods and their parts and extending the exemptions on import of certain critical goods used in manufacture of solar cells and modules. This is expected to incentivize manufacturing of solar cells and modules in India.
Benefits under the MOOWR scheme, which allows manufacturing operations to be carried out in bonded warehouses with duty-free imports of raw material and capital goods, are proposed to be restricted for specific sectors. While this step seems to be undertaken due to certain court pronouncements for the solar power sector, the same appears to be retrograde and does not send out positive signals to the investors. This should have been avoided, given the scheme has provided a significant boost to investment in the manufacturing sector.
There are certain other steps announced to facilitate trade and resolve disputes, such as providing retrospective exemption from levy of GST Compensation Cess on imports by SEZ units, extension of time limits for duty free re-imports and relaxed documentation in support of establishing country of origin in respect of imports under the free/ preferential trade agreements. However, one wonders if a dispute resolution scheme should have been announced to resolve pending customs duty litigation.
From a GST perspective, the focus seems to create more certainty in the tax administration and dispute resolution, considering the massive surge in the GST litigation. The tone was set through various clarifications issued by the Government post the 53rd GST Council meeting and the same is furthered in the proposals.
Rationalization in the adjudication processes in relation to Notices issued for FY 2024-25 onwards, waiver in interest and penalties subject to voluntary payment of taxes for initial years of GST, consideration of industry practices for resolution of disputes, retrospective extension in the dates for availment of ITC and announcement of a sunset clause for anti-profiteering provisions are steps in the right direction which should be welcomed by the Industry.
While infrastructure was stated to be one of the focus sectors, surprisingly there is not much of a change in the rate structure for the sector and status-quo is maintained. It was widely speculated that steps may be taken to address the issue of duty inversion faced by the sector, given that the output from the sector generally enjoys exemption or lower rate of GST whereas procurements suffer tax at median rate of eighteen percent leading to credit accumulation. A 'deemed export' status for the sector could be considered, whereby supplies by the sector may be eligible for refund or rebate of such accumulated credits.
To sum up, while the indirect tax proposals contained in the Budget aim at creating a taxpayer friendly environment by focussing on ease of compliances and dispute resolution, it appears that Government has stopped short on taking affirmative measures which could have provided impetus to investments in key sectors and eased the burden of GST on the end consumers. However, given that this was the first budget for the newly elected Government, it certainly sets out the tone for future steps that may be undertaken in this regard in the times to come.
Originally published by Financial Express.
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