When Hon'ble Finance Minister presented the Union Budget on February 1, she had an unenviable task at hand. An economy that was already crippled by a global slowdown had been further pushed into an unprecedented downturn by the COVID-19 pandemic and the ensuing lockdowns. While the Government did release stimulus packages to counter the resultant economic contraction, the nation expected the Budget to provide significant measures to propel the economy back into the recovery mode. Against this dismal backdrop, the tax proposals in the Union Budget were keenly awaited with certain apprehensions around introduction of new taxes or levies.
The good news first; there are no new taxes or cesses announced in the budget. While it is proposed to introduce Agriculture Infrastructure and Development Cess (“AIDC') on import of select goods and supply of petrol and diesel, to fund the development of agricultural infrastructure, suitable amendments have been carried out in the duty structure to ensure that this cess does not result in price increase.
Indirect tax proposals contained in the Budget are in line with the stated vision of ‘Aaatmnirbhar Bharat' and ‘Make in India', giving fillip to domestic manufacturing in sectors such as renewable energy, electronics, mobile phones, textiles, and agri-products.
This explains the withdrawal of customs duty exemptions on many items of household and industrial use. While the move may result in price increase in the short run, it may be beneficial once capacities are created in the domestic market, leading to import-substitution. To accelerate the impetus to domestic manufacturing, it is important that the Government follows up this step with the incentives or schemes aimed at specific sectors.
Additionally, a revised structure of customs duty exemptions is on the anvil and is expected to be in place from October this year. It is certain that the days when progressive reduction in customs duties to 10% and lesser were the norm, are over. The global trade community, including the World Trade Organization, will certainly keep an eye on these developments.
In the backdrop of improving GST collections, the GST proposals contained in the Union Budget focus largely on easing the compliance burden for assessees and strengthening the penal provisions in case of defaults.
Withdrawal of the requirements to submit audited financial and reconciliation statements is a welcome step which avoids delays in the discharge of annual compliances. However, this would increase the onus on the assessees to ensure proper disclosures in the Annual Returns, which now need to be filed on a self-certification basis.
Thus far, exporters had the option to export goods and services, either without payment of tax and subsequent filing for a refund of accumulated credits, or with payment of tax after setting off the credits and claiming a refund of the tax liability so discharged. While the latter option did involve a cash outflow, it resulted in immediate disbursals of such refunds which was preferred by taxpayers, who had significant credit blockage or accumulation. Now it is proposed that the option of exporting with payment of tax would be limited only to the specified class of goods and services or taxpayers. This appears to be restrictive and need to be analyzed in greater detail once appropriate notifications are issued.
Further, a couple of retrospective amendments proposed in the GST laws with effect from July 2017, merit attention. On the positive side is the proposal that interest be levied only on unpaid or delayed taxes on the net liability after setting off the available credits, instead of the gross amount payable by the taxpayer, as originally envisaged. This provides an equitable proposition of law, putting to rest any litigation on this issue.
However, another retrospective amendment that makes supplies made by a club or association to their members taxable is being questioned, as it sends out wrong signals to the industry. Disputes on this issue in the previous regime had led the Apex Court eventually to hold that such supplies should not attract any tax. The Government is seeking to overcome this limitation through an amendment in the law.
Overall, considering the constraints in the current fiscal climate, the Budget 2021 is commendable in refraining from the imposition of any new levies while offering an ambitious capital outlay to achieve the stated objectives. This certainly denotes the Government's significant leap of faith in the resilience of India and its people.
Views are personal.
Originally Published by J. Sagar Associates, February 2021
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.