Budget expectations from indirect taxation perspective

The Union Budget to be presented on Monday, is slated to be one of the most important and anticipated one, given the economic devastation that has been caused by the COVID-19 pandemic and the resultant lockdowns and market disruptions.

The government will try to set a new direction for the economy with emphasis on creating opportunities for domestic business and industry, and an effort to be more ‘AtmaNirbhar’. Some of the key demands of the industry, which have been advanced over the years, if met, could hold the key for signalling the government’s intention of a progressive revival.
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Healthcare sector

Healthcare is a segment which has become vital in the recent times. The unavailability of input tax credits, primarily due to healthcare services being exempted under the GST, is a cause of major heartburn, as GST paid on procurements in the supply chain constantly elevates the cost of healthcare services.

The Government should consider making healthcare services either zero-rated or levy a concessional rate of 5% GST with input tax credit to bring down the costs. Reduction in GST rates for clinical trials (from 18%) performed in India for foreign companies are also desirable, considering the developments in the pharmaceutical industry in recent times.

The matter of GST

Sectors such as textiles, railways, mobile phones, fertilisers and footwear which bear the brunt of the non-eligibility of refund of GST in cases of inverted duty structure will look upto the government to ease their burden. These sectors have voiced their concerns many times and it would be a big boost to the affected sectors as it would allow access to trapped funds and lead to a greater ‘ease of doing business’ in India.

The inclusion of petroleum products under the ambit of GST is a demand that has been simmering since the introduction of ‘one nation-one tax’. The retail prices of petroleum, today consists of more than 70 percent taxes. Since, the Government is keen on taking initiatives like clean energy, products such as Liquefied natural gas (LNG) can be considered to be initially brought under the GST regime to set up a platform.

Understanding PLI

The Project Linked Incentive (PLI) Schemes is one way in which the Government is trying to promote local manufacturing. It should be their primary endeavour to extend this scheme to as many sectors as possible and provide the incumbent with related benefits. One area of expansion can be to cover manufacture of LED smart television sets under the PLI schemes as the domestic manufacturing market has a good potential but also suffers from the burden of local tax. Further, the imposition of 5% customs duty in 2020 on open-cell panels, which is a key raw material, also drives up the cost of television manufacturing.

The Government can rationalize the GSTN portal to allow the following:

  • Amendments at a time when input tax credit is taken

  • A re-look at some notifications issued, particularly the amendment to Rule 21A of the CGST Rules

  • Denying opportunity of hearing in case of perceived misdoing and cancellation of registration

  • Allowing the industry some leeway in introducing the e-invoicing and QR code implementation on invoicing. These are presently coming out of an era of lockdown which has caused severe damage to available resources.

Customs made

On the Customs front, facilitation measures should be introduced in all major ports for expedited clearance of all Exim goods, and those related to e-commerce in particular. This will give a much needed fillip to the industry. Other measures include overhauling of the Special Valuation Branch (SVB) scheme to reduce the burden of backlog.

The wishlist for a post-COVID Budget is huge and cannot be covered easily. The overall objective should be recovery of the economy, reassurance to the industry, and an indication of faith to show that they are in step with the demands of the markets.

(Rajat Bose, Partner and Neeladri Chakrabarti, Consultant, Shardul Amarchand Mangaldas & Co)

Budget expectations from indirect taxation perspective Budget expectations from indirect taxation perspective Reviewed by TechCO on 1/29/2021 Rating: 5

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