Budget 2020: Indirect tax proposals may take Make in India theme forward; customs electronic duty credit ledger a milestone

From an indirect tax perspective, the longest Budget speech in Indian history of 160 minutes highlighted the continuing trend of reforms under the Goods and Services Tax (GST) law, introduction of electronic invoice to facilitate GST compliance/return filing and also touched upon varied measures on the customs side for “ease of doing” business in India. Budget 2020 evidences an apparent focus of the government to encourage local manufacturing and consumption thereof. There is a conscious increase in non-creditable customs duty levy in case of imported shelled walnuts, footwear and parts thereof, notified household items/appliances including ceramic tableware, kitchenware, household articles, etc. Similarly, there is an increase in customs duty on imported furniture goods, toys, stationery items, filing cabinets and pen trays. [caption id=“attachment_4270025” align=“alignleft” width=“380”] Representational image. Reuters[/caption] The intent to support the micro, small and medium enterprises (MSME) manufacturing sector in India has increased the thrust to the “Make in India” agenda by way of hike in customs duty on goods meant for sale without any further value addition locally. A similar initiative has been put in place to support the domestic electronic manufacturing and electric vehicle (EV) industry. Overall the changes should effectively trigger an impetus for investment in the manufacturing sector coupled with other continued efforts of the government to boost the investment sentiment. This trend is more obvious where concessions hitherto granted to imported goods have been withdrawn thereby leading to an increase in customs duty on imports. Key among them would be products such as peanut butter, dietary soya fibre, preserved potatoes etc. Concessional customs duty enjoyed by food preparation for infant use put up for retail sale has also been withdrawn. This would largely set up a level playing field for the indigenous manufacturers. A new levy of customs duty namely ‘health cess’ at 5 percent on the value of imported goods is proposed to be imposed on the import of medical devices. Health cess is not imposed on inputs/parts used in the manufacturing of such medical devices. This is in sync with the recommendation of certain industry bodies who had sought for increasing customs duty in a graded manner to enable domestic manufacturers have a better competition in this segment. The proceeds of Health Cess shall be used by the Government to fund health infrastructure in the country. Cigarettes, chewing tobacco, snuff and preparations containing snuff etc would be costlier given the increase of central excise. Availability of Free Trade Agreement (FTA) benefits has been under the scanner of customs enforcement agencies. The Budget seeks to shift the onus on the importer availing FTA benefits to evidence that the exemptions have been correctly availed. The proposed changes could potentially increase the compliance burden on importers availing the said benefits and the importer would need to be take steps to address the additional challenging requirements under the proposed provisions. The anti-dumping rules and the countervailing duty rules have also been tweaked to strengthen the anti-circumvention measures and enable due investigation by authorities under customs law. An interesting development is the proposal to introduce customs electronic duty credit ledger for granting duty credits, remission, incentives etc. While clarity is awaited on the scope and coverage of the ledger, this could be another milestone from the ease of doing business standpoint coupled with digital footprint. The GST rule is sought to be amended to trigger imposition of penalties against persons ‘causing and benefitting’ fraudulent input tax credit. Overall, the indirect tax proposals in Budget 2020 appear to be consistent with the persistent effort and messaging to take the “Make in India” theme forward. At the same time, more teeth have been provided to plug possibilities of tax evasion with greater thrust to compliance. (The writer is Partner at EY) Follow full coverage of Union Budget 2020-21 here