While the whole world’s attention is on India as the largest democracy prepares for the upcoming general elections in the coming months, the finance minister gears up to present his sixth Budget speech on 1 February.
However, as against a full-fledged Budget presented last February, the government is likely to come out with an interim Budget also referred to as Vote-on-Account this year. A Vote-on-Account or approval is taken for the expenditure to be incurred in the coming months till the election and a full-fledged Budget is subsequently presented by the new government.
Generally, an interim Budget should neither make major policy announcements nor provide any tax sops. Further, since all indirect taxes have been subsumed in Goods and Services Tax (GST), any changes in their rates are normally done by the GST Council thereby leaving not much for the Budget session.
This is evident from the fact that even in last year’s Budget there were no announcements related to GST as most of the changes were managed by the GST Council. However, considering this being an election year, the government may make a departure from such traditional norm and may be tempted to make populist announcements.
Though the country implemented the GST in July 2017 with an objective of ‘One Tax, One Nation, One Market’, a large part of the economy such as petrol, diesel, electricity, land and real estate is still outside its ambit.
While petroleum products are constitutionally included under the GST, the date on which the GST shall be levied on such goods shall be decided by the GST Council. When the prices of petrol and diesel rose steeply, voices have been raised to include such items under the GST. It would be interesting to see if the finance minister makes any announcements or provides any mechanism to include such products under the GST.
While an increase in exemption threshold for small and medium enterprises (SMEs) has provided the much needed elixir, rationalisation of rates is also on the cards, specifically in the housing sector. The real estate industry and the home buyers will definitely be awaiting some announcements to address the issue of affordability.
With net GST at 12 percent and stamp duty as high as 6-8 percent depending on the state, the government’s mission of 'Housing for all by 2022’ seems to be moving nowhere as homebuyers are finding it unaffordable to purchase a home.
Though, a seven-member committee has been constituted to address the issue of bringing under-construction and finished houses under the 5 percent GST slab from the current rate of 12 percent, this being a longstanding issue for homebuyers and developers which they hope is addressed in the interim Budget. Discussion to include stamp duty under the GST is also underway.
The auto sector has also pinned hopes on the interim Budget for announcements which may provide the required stimulus for the industry.
The world's fourth-largest auto industry, which is continuously making efforts and investment to move to hybrid and electric vehicles, is expecting that the interim Budget will bring GST rate on all categories of electric vehicles including batteries down to 5 percent with input advance tax credit availability. At present, electric vehicle and lithium batteries are subject to 12 percent and 18 percent GST rate respectively.
There has been a long-pending demand of having a convergence between the customs valuation for imported goods and transfer pricing under Income Tax laws as both are based on the objective to ensure that taxable values of imports are correct, and taxes are paid appropriately at arm’s length value. The industry expects detail guidance to be issued bringing harmony between these two legislation relating to acceptability of arm’s length price.
Since, being an interim Budget, the options before the finance minister to tinker with the rates and provide any tax sops are limited, he can convey a strong political message on behalf of the outgoing government.
The interim Budget may highlight the government's achievements as well as provide an opportunity to draw a picture of its upcoming election manifesto stating what it has planned for the next five years.
(Dalvi is partner and deputy head, indirect tax, KPMG in India and Purohit is chartered accountant)
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Updated Date: Jan 30, 2019 16:29:13 IST