Budget 2016: Glimmer of hope for GST?

By Sachhin Shinde and Snehbala Biyani, Deloitte Haskins & Sells LLP
Amidst economic prospects across the globe, India has posed as a beacon of hope with ambitious growth targets, supported by strategic concepts like ‘Make in India’, ‘Digital India’, etc. Contributing to this is also the proposed indirect tax reform i.e. Goods and Services Tax (‘GST’) which is expected to provide the much needed stimulant for economic growth by transforming the existing basis of indirect taxation in the process enabling free flow of goods within the economy and also eliminating the cascading effect of tax on tax. Given the important role that India is expected to play in the world economy in the coming years, the expectation of GST being introduced is high not only within the country, but also in neighboring countries and in developed economies of the world.

Therefore, the indirect tax announcements in the budget are expected to be indicative of things to come by way of introduction of measures attempting at synergy between the present indirect tax regime and GST. To begin with, the CENVAT credit mechanism needs to be rationalized by reintroducing the concept of input services used in the business so as to achieve the fundamental proposition that burden should not rest on businesses where the tax is on final consumption.

Secondly, it is expected that the CST rate be reduced to 1 % which will be a step closer to phasing out CST completely.

Further, to simplify the tax structure, it would be necessary to initiate measures for doing away with levy of cess by various ministries, the levy and collection of which is administered by the Central Excise Department.

Similarly, it may be expected that the threshold limit for Service tax would be increased while that of Central Excise to be reduced to align it with expected threshold limits under GST.

Apart from these, it is necessary for the Government to provide clarifications/ amendments to settle long drawn disputes. Settlement scheme may be introduced on lines similar to erstwhile Kar Vivad Samadhan Scheme. This will help in reducing carry forward of disputes to the GST regime and in the process enable assesses to concentrate on managing their indirect taxes effectively in the GST regime.

Another expectation of the industry is smoothening of administrative procedures around refund claims and SVB valuations which are plagued with inordinate delays in assessments coupled with huge revenue deposits which result in uncertainty and blockage of working capital for companies. The Government should focus on these aspects and devise a mechanism to streamline administrative procedures to provide for simpler compliances and specific timelines.

Apart from the general policy and administrative changes, there are certain industry specific expectations which merit Finance Minister’s consideration.

To give a boost to Digital India, the Government should provide necessary sops to promote manufacturing of hardware in India. Also, the much needed clarification to avoid dual levy of State and Central taxes on software should be provided to win confidence of the IT business sector.

Another sector which needs impetus is the health sector. Customs duty exemption on inputs required for manufacturing/ assembly of health care equipment will promote the manufacturing activity of health equipment and electronics in India.

Similarly, fiscal and non-fiscal incentives may be provided to the sector of Solar Power Generation to enable the industry to achieve its objective of generation of affordable power.

Thus, the Union Budget 2016-17 has an important task to keep up the positive economic outlook of India by bringing in major indirect tax reforms and addressing business concerns. In addition, the passing of Constitutional Amendment Bill for GST in this budget session, will not only help the Government to set up a positive environment but also will be a giant step towards reinforcing the perception about India as the next investment destination.