Published Editorial

Budget 2017 - Encouraging to see government committed to GST in 2017

February 2017

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Harishanker Subramaniam
National Leader, Indirect Tax, EY India

The Union Budget was expected to do minimal changes in customs, excise and service tax to send a clear signal of the government’s seriousness to implement GST in 2017. Even the murmurs around service tax rate increase to align with GST rate structure were speculative in my personal view.

So as the Finance Minister’s budget speech unfolded it was great to hear that he has preferred to avoid making changes in the current excise and service tax regime since GST is around the corner. Even the temptation to raise incrementally service tax was given a pass which is indeed welcome. Custom and excise duty standard rates have also been maintained.

This now signals their intent of implementing the tectonic and transformative GST in 2017. Any lingering doubts around GST is now laid to rest and it’s time for all stakeholders to take note and prepare for this journey in right earnest. Demonetisation and GST is in-fact a two pronged plan for the government to expand the tax base and increase the tax GDP ratio in the coming years.

Amongst the limited changes there have been some notable ones, foremost was the repeal of Research and Development Cess Act. The 5% cess under this act was levied on import of technology and was a cost in the current regime. Going forward under GST this was not to be subsumed amongst other cesses and would have continued to be a cost in the value chain and the industry wanted a solution. This repeal is a very positive step, there are several other cesses across sectors of this nature which equally require some mitigation to avoid cascading under GST.

Changes have been made in sectors like chemicals and renewable energy to customs and excise duties to remove the anomaly of inverted duty structure and incentivise local manufacture. The same theme has also seen SAD applicability on mobile phone PCB’s which was rolled back last year to promote more local manufacturing content. Also 30% export duty have been imposed on Aluminium ores and concentrates.

Targeted custom duty reductions have happened in some sectors namely reduction in basic custom duty for LNG. Duty concessions for Point of sale terminals, scanners, micro ATM equipment etc. have also been given in line with the push for digital transactions.

The service tax valuation rules have been amended retrospectively from July 2010 in a bid to reverse the effect of Delhi High Court judgement striking down levy of service tax on construction of immovable property. The retrospective amendment now allows for the deduction of value of land transferred in case of construction of immovable property.

Authority of Advance Ruling constituted for Income tax will now also hear indirect tax applications. The time period for disposals has been aligned to 6 months. The need is now to ensure there are adequate benches and quorum for expeditious disposal of pending cases. Also Settlement Commission is now empowered to rectify any apparent error on the face of the record of the order passed.

From a procedural front for speedy clearance of imports, Bills of Entry are now to be filed within 1 day of the goods arrival and custom duty to be paid by the very next day. This puts the onus on importers to process customs clearance faster and reduce dwell time in ports.

The Budget was along the lines of expectations and it’s encouraging to see that the government is committed to GST in 2017.

(Views expressed are personal)