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Union Budget 2018 – Indirect tax post GST regime

February 2, 2018 14441 Views
Krishan Arora
Partner, Grant Thornton

With an idea of extending 'Ease of Doing Business' by the current Government, Union Budget 2018 showcased a paradigm shift of Government's focus to 'Ease of Living'. This year's budget proposals largely focused on providing support to agriculture, boosting growth and employment through intervention and infrastructure development strengthening rural economy.

Talking of Indirect taxes, with introduction of GST and constant efforts in making the newly implemented tax structure more efficient and exhaustive, no major changes were witnessed this year, which was more or less expected. However, with tinkering of Customs duty rates, announcements on procedural ease and time-bound closure of disputes, the government seems to have reiterated their focus on 'Make in India' and 'Ease of Doing Business' on one side and aligning the Customs provisions with GST provisions on the other.

As a measure to boost 'Make in India' campaign, Basic Customs duty (BCD) has been increased on many consumer goods such as edible oils, perfume and toiletry preparations, mobile phones, smart watches, medical devices, automobile parts, toys and games, furniture, imitation jewellery etc. Increase in import duty has given a very clear and a loud message by the Indian Government to foreign companies to setup manufacturing in India rather than export goods to India and at the same time, protect the existing Indian manufacturing industry.

For procedural ease, Government has made efforts to smoothen the process of dispute resolution on Customs front and to avoid undue litigation by introducing measures like pre-notice consultation and time bound closure of demand notices. This is a welcome move and is likely to bring some relief to all organized businesses who bear immense legal costs without any visibility of an early relief or timely decision from department, which at times, results in repeated litigation on same issue and also adds on to the overall interests costs associated with tax demands. On the other side, it would also ensure accountability of authorities with an outcome based performance obligation that the Government is driving towards its policies and initiatives.

Similar to past few budgets, Government continued to make an attempt to do away with certain unwanted provisions to align towards the new GST regime. However, it has also put forth certain new challenges by introducing new levies in form of Social Welfare Surcharge and Road and Infrastructure Cess, especially considering that the intent was to consolidate all levies, cesses and surcharges with introduction of GST.

While the proceeds realised from such levies will be utilised for social obligations, the same has already brought in ambiguity in minds of taxpayers. For instance, while computing overall Customs duty, Integrated Goods and Service Tax (IGST) is levied in addition to BCD and IGST was levied on the assessable value including Education and Secondary Higher Education cesses, which have been proposed to be abolished in present budget. Since Social Welfare Surcharge has replaced these earlier cesses, in view of earlier position, there is an ambiguity whether IGST should be levied on assessable value inclusive or exclusive of Social Welfare Surcharge. This anomaly appears to be similar to one observed at time of introduction of Education and Secondary Higher Education cesses back in 2004 that was subsequently clarified by Government. An appropriate clarification on this front would be helpful for taxpayers to comply with this new levy.

As regards changes proposed in duty structure for Petroleum products viz. Petrol and Diesel, the additional levy of Road and Infrastructure Cess seems to have negated the overall Excise duty reduction and thus the overall tax impact does not seem to have been reduced on these products. This may not go very positively with Petroleum industry which continues to kept outside GST and is bearing additional tax costs on account of a dual indirect tax regime applicable to them.

It may not be out of sight to mention that even though Budget 2018 aims at safeguarding domestic business community, it did not address few key critical issues from GST perspective. The businesses at large were expecting that Government would make some concrete announcements around making GST return filing process easy including the much talked about 'matching' concept for procurements and supplies. Union Budget would have been an ideal platform for Government to showcase its intent towards bringing more efficiencies in GST regime especially on the compliance side.

Having witnessed two consecutive budgets of 2017 and 2018 practically noiseless on Indirect Tax front, the budget did not lay down any major policy push in any particular direction other than pursuing broad contours of 'Make in India', Digitization and providing some impetus to the Rural sector. It seems that businesses would rather be looking forward to GST Council meetings than Union Budgets in times to come, given the overall shift in Indirect tax regime from multiple taxes to GST.

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