There is a continuation of stable tax regime with no rate change or other significant changes in provisions relating to levy of tax or compliance thereto.
This is new to tax payers – minimalistic changes being made to the provisions – a fantastic approach paving way for making budget a non-event year after year.
However, Budget would always bring in some changes and they would have their share of impact. This year, changes are more aligned to improving tax compliances and moving forward on the path of negative list based taxation by reducing exemptions.
The move is good but slower than expected from a policy change perspective. The expected merger of excise and service tax regulations was also not seen.
As for the changes, the theme of taxing super rich seems to have been overlaid in Indirect taxes as well. Apart from this, some of the key exemptions withdrawn are to copyright transactions, educational institutions, restaurants and aircraft maintenance for government.
With regard to the change for copyrights, the previous budget had provided an exemption on all transfer of copyrights in cinematographic films other than sound recording.
However, with the simultaneous introduction of negative list bringing actors in the tax next as well as an increase in the input service tax costs being incurred by producers, the said exemption was working against them.
The government has now levied tax on non-theatrical revenues of a producer (or distributor) thereby at least partially improving the input credit recoverability and reducing costs.
In a significant move to garner revenues locked in litigation, it has been stated that in case a demand is stayed by the tribunal, it would become payable after the expiry of 365 days of such grant if the tribunal has not disposed of the matter on merits by then.
This provision would apply even if the delay in tribunal’s finalisation of the matter is for no fault of the tax payer.
On the litigation front, another noteworthy change is that advance rulings have now been opened up for Public Limited Companies as well. Historically, the benefit of advance ruling was largely restricted to non-residents or joint ventures with non-residents. The change is a welcome amendment and appropriate representations should be made to extend this to private companies as well, if not for all assesses.
In an interesting move, an amnesty scheme (Service Tax Voluntary Compliance Encouragement Scheme, 2013) has been announced for taxes unpaid for the 5 year period from October 2007 to December 2012. The scheme offers a waiver of interest and penalty is the tax is paid by June 2014.
This could be a good opportunity for tax payers to clean up their closet and close all matters where aggressive tax positions were taken. The only caveat is that it does not apply to matters under inquiry, investigation, search, audit or summon.
Prosecution provisions are now proposed to be coupled with the power to arrest similar to those in excise and customs regulations. These powers are available to the Commissioner. Some more instructions are awaited on this. In some ways, which this provision, the recovery mechanism in service tax is at par with the other two central levies, suggesting that in the eyes of the Government, service tax has matured into a full-blown indirect tax regulation.
On GST, it was clear that there is an overwhelming support for its introduction by State Governments. The Central Government has also shown its earnestness to support this reform by committing 9000 crores for compensation to States.
This signals that efforts to take the discussions to the next level of drafting the final bill for Constitution amendments and GST bill should get a boost.
In summary, limited changes are good and suggest a long-standing policy regime. Increase in powers to collect and amnesty suggest that the Government is serious on effective implementation of the law. Reducing exemptions and extension of advance rulings are a step in the right direction.
The Budget does not address the big question of double taxation between service tax and value added tax for some of the services like copyrights and software; however, announcements relating to GST are encouraging and its introduction would inevitably nullify these issues.
The writer is Tax Partner, Ernst & Young