Union Budget was hitherto an exercise of balancing the fiscal position of the country. Tweaking of taxes, amendments and modifications of the existing tax structures mainly to manage the fiscal deficit scenario was the order of the day until now. This time there is a shift, and this shift is sparked off by GST - Goods and Service Tax. GST will bring a tectonic shift, triggering a massive disruptive event, which will catapult the economy into a fast track growth.
This is the first time in the history of the nation that both Centre and states, with divergent objectives and ideologies have joined hands in partnership, for the biggest tax reform this country has ever seen. Finance Minister Arun Jaitley has said that, it is a unique situation of ‘pooled sovereignty’ which is the greatest example of co-operative federalism.
In essence this highlights the fact that our tax laws need to keep pace with our ever growing economy. In other words, our sophisticated, growing economy needs a sophisticated and indeed, much more comprehensive tax code. We can no longer legislate in broad generic strokes and leave it to our courts and the field officials to do the rest.
On 1 February, the first thing the Union Budget 2017-18 schedule will pick up is passage of the GST law. In view of the advent of GST, we only hope that the Budget should be aimed towards alignment and integration for smoothening the passage of this big-ticket reform so that transition to GST is hurdle free and the industry is geared to address the transition with unidirection. Pruning the exemption is a step towards progression to GST, as it will help in ensuring that there is no break in credit chain.
The demonetisation drive of the government is aimed at reducing cash transaction and is a definite step towards cashless digital economy. While GST does not encourage exemptions, the government recently introduced service tax exemption on merchant discount to the acquiring bank to the extent the spent is up to Rs 2,000 to give further push to the digital economy and cashless transactions. It is expected that government may come up with similar benefit to incentivise cashless transactions albeit such exemptions would be short-lived.
In view of the above perspective, one of the synergistic move that we expect the Budget to focus is the “Ease of Doing Business”. This move would be a positive direction towards migration to GST. Bearing this focus, some of the necessary changes which are on the expectation list of all industries are as follows:
1) The due date for payment of service tax liability is 6th of next month. This is no doubt a very tight time line. VAT laws of most states provide at least 20 days for tax computation and payment. Even the draft GST law prescribes 20th of the next month for tax payment. It becomes a natural progression for the Budget to align with the payment date prescribed in GST.
2) There is no time limit mentioned in the law for adjudication of show-cause notice. In the absence of time limit for adjudication, unnecessary ambiguity and confusion are created leading to long-pending litigations adversely affecting the business. Budget by rectifying this will not only create a business climate of certainty but will also reduce the carry forward of the past litigation in the GST regime.
3) There is no clarity on availability of credit of education cess and secondary and higher education cess lying in balance as on 28 February 2015 for manufacturers and 31 May 2015 for service providers. The transition provisions in the draft GST law also do not provide for eligibility of such credit. The government in this Budget should allow such credit to be utilised so that in the GST regime industry can start with a clean slate without getting deprived of their legal right.
4) Presently selective category of persons can only apply for advance ruling. Advance ruling is an effective mechanism to plan tax affairs well in advance and to avoid long drawn and expensive litigation. The proposed GST law liberally allows anyone to apply for advance ruling. Such opportunity if introduced in the Budget would boost investors confidence to take informed decisions.
5) There has been a long pending litigation around the term ‘deemed manufacture’ and the extent to which it can be pushed to impose excise duties. Despite several court precedents on this matter department clarification is long pending. While courts have drawn boundaries to limit the applicability of tax around this fiction of ‘deemed manufacture’ such fiction does not find any place in the draft GST law. Nonetheless the concept of ‘deemed manufacture’ does not fit in to the DNA of proposed GST. This last Budget (for the pre GST taxes) is a good opportunity to clarify the fiction and align with the concept of ‘manufacturing’ thereby letting rest to numerous litigations.
The Budget is expected to be unique this time with the objective of marching towards GST and improving India’s ranking on ‘Ease of Doing Business’.
(The author is a Partner - Indirect Tax at PwC India)
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Updated Date: Jan 25, 2017 12:37 PM