Budget 2015: Expect a clear and time bound roadmap to GST

By Sanjay Kapadia, Partner – Tax & Regulatory Services, EY India

Budget 2015 can be said to be the “first” full-year budget of the NDA Government, being presented after about 11 months in office (2014 Budget was announced within two months of the new Government being sworn in). In the last time period that the Government has been office, it has announced a number of initiatives like “Make in India”, “Innovate in India”, “Digital India”. Through the budget, the Government can incentivise foreign and domestic investments to support projects in relation to these campaigns and make the campaigns successful.

Some measures that the Government can consider in this regard are:

Expediting implementation of Goods and Services Tax (GST)

To make the “Make in India” drive effective, it is imperative that the cost of production in India is optimised. It is expected that with the implementation of GST, multiple incidence of taxes and leakages on account of unavailability of tax credits, can be eliminated. This will assist in bringing down the production costs and also facilitate ease of doing business in India. A clear and time bound roadmap to GST should be one of the primary considerations of the Government for Budget 2015.

Reviving Special Economic Zones (SEZs)

More than 25% of India’s exports come from SEZs. However, the year on year growth of exports from SEZs, has declined from a healthy 121% in 2009-10 to a mere 4%1 2013-14.

SEZs can be the game changer for the success of the “Make in India” drive. While the Government has already taken some measures to boost investments in SEZs viz reducing the area requirements for developing SEZs, sharing of common infrastructure with non-SEZ businesses, roll back/ rationalisation of Minimum Alternative Tax imposed on SEZ units (currently pegged at 21%), is a strong expectation of the industry. MAT has been considered to be one of the primary reasons of slow off take of SEZs in the recent times. Roll back of MAT on SEZ units will assist in making India more competitive in the global market.

Research and Development (R&D) incentive for the IT industry

India has been known to be the hub of IT services. Incentivising R&D in the field of software/ IT applications would assist in propelling India in the value chain. Further, the same could also provide the necessary impetus to the Government’s initiatives of “Innovate in India”, “Smart cities” and “Digital India”.

Currently, a 200% weighted deduction of expenditure incurred on R&D is allowed to manufacturing companies. Whether companies engaged in the development of software are regarded as manufacturing companies and are thus eligible for the benefit, has been subject of matter of debate. The Rangachari committee on taxation of IT services, appointed by the Government, opined that the current law does not envisage a deduction for R&D in the fields of IT/software development.

Given that IT innovation is the central theme of many of the programs launched by the Government, it would be only appropriate if the Government clarifies in the upcoming budget the, availability of the deduction to software/IT companies.