Budget 2015: A mixture of populist and reformist measures

Keval Doshi, Tax Partner, EY India

The Modi-led government has announced the much-awaited Union Budget 2015 which can be said to be a mixture of populist and reformist measures in order to strike a balance between expectations and fiscal prudence. Some key announcements which impact the manufacturing sector and which gel with the 'Make in India' vision are summarised as under.

While a reduction in corporate tax rate from 30% to 25% is welcome, the roadmap to reach the 25% tax rate seems to be unclear at present.

The FM has reiterated a firm commitment to introduce GST by 1 April, 2016 and has stated that measures to implement GST will be shortly introduced.

The proposal to defer GAAR by two years is a welcome step. Also, increase in time limit for taking CENVAT credit on inputs from six months to one.

Reduction of rate on royalty and fees from technical services from 25% to 10% would help in reducing the cost of technology and thereby should provide impetus to manufacturing sector.

Extending the weighted deduction on wages paid to new workmen to all taxpayers having manufacturing units (presently available only to a company) coupled with reduction in requirement of number of new workmen from 100 to 50 would help in ushering job opportunities with a positive impact on the manufacturing cycle.

Further, measures such as (i) granting of additional investment allowance for investment in plant and machinery for notified backward areas in the states of Andhra Pradesh and Telangana and (ii) granting of additional depreciation @ 35% for entities set up in such areas are welcome.

Also, extending the preferential interest rate regime of 5% to 30 June 2017 should help in attracting FIIs/ QFIs who would like to invest in corporate bonds, Government securities, etc. From an industry standpoint, reduction in Basic Custom duty on certain goods to minimise the impact of duty inversion is a positive move.

A few proposals which will bring in an ease of doing business are as under.

* Some clarity in indirect transfer-related provisions

* Online central excise and service tax registration in 2 working days

* Launch of e-biz portal aiming at integrating 14 regulatory permissions at one source

* Rationalisation of penalty provisions

Last but not the least, the government also had the inevitable task to reduce the fiscal deficit of the country and has thus introduced certain revenue-garnering measures as under:

* Increase in surcharge by 2% in case of domestic companies

* Increase in service tax from 12.36% to 14% to facilitate transition to GST

* Increase in general excise duty rate from 12.36% to 12.50% with a removal of education cess.

* Swachh Bharat cess @ 2% on all or certain services have been proposed

* Further trimming of negative list under service tax

To summarise, Budget 2015 had placed upon itself the daunting task of meeting the public's expectations with respect to the manufacturing sector. In this budget, the government has looked at mobilising higher resources and reviving investments. Inching towards a stable taxation policy and GST, the reforms conveyed in this budget speak volumes of the government's intent of invigorating and revitalising the sector.

Saurabh Shah and Saurabh Shah, senior tax professionals at EY contributed to the article.

The views expressed in this article are personal to the author.