Budget 2017: FM Jaitley’s assurance about GST corroborates govt’s intent for earliest rollout

By Pratik Jain

No news is good news. This perhaps best summarises the indirect tax proposals presented in the budget. With GST round the corner, any significant changes in the excise/service tax regime would have caused undue hardship to the taxpayers, possibly with no commensurate benefits.

As expected, the finance minister did speak about the progress that has been made on all fronts around GST roll out. While he did not specifically mention July 2017 being the target implementation date, he provided enough assurance about GST being on track, with no major hurdles left to be crossed. In fact, the awareness sessions for taxpayers will commence from April, which further corroborates the intent of the government to roll out GST at the earliest.

Purely from a GST perspective, there was a case to increase the service tax rate from 15% to say, 18%. However, the government’s decision not to go ahead with the hike will come as a pleasant surprise to both industry and the common man. While one will have to brace for an increase in tax incidence on services under GST, any change in service tax rate at this stage, though temporary, would have warranted corresponding changes in the billing systems, etc.

The proposal to withdraw the Research & Development Cess (levied at 5% on import of technology into India under a foreign collaboration) is a welcome move, as it currently becomes an incremental cost even to manufacturers, who are otherwise able to claim a set-off of service tax applicable on import of manufacturing knowhow.

This also puts to rest the uncertainty around whether or not the R&D cess would continue under GST. However, the industry didn’t get lucky on customs cess, which will continue at least under the current regime.

Then there are a few changes in the customs/excise duty rates to address the inverted duty structure, incentivise indigenous manufacturing and promote digital payments. These include exemptions/concessions for miniaturised PoS card readers (including parts required for their manufacture), parts used in manufacture of LED lights or fixtures, etc.

The basic customs duty rate on LNG has also been reduced from 5% to 2.5%, which was a longstanding demand of the industry. The advance ruling authority under customs/excise/service tax has been shifted to that under the I-T Act. Given the significant backlog of advance rulings under indirect taxes, one would hope that the proposed transition would lead to an expeditious resolution.

Given that we would be transitioning to GST later this year, this may well turn out to be the last budget where the finance minister had the opportunity to propose any significant/structural changes in central indirect taxes. As most of the changes under GST will be initiated through the GST Council (which also comprises the states), it will be interesting to see if the council will also have a similar ‘annual day’ to announce changes in the GST laws!

(The authour is partner, PWC India. Views are personal)