Restoring exemptions to mega and non-mega power projects
Listing of natural gas as a 'declared good' attracting a maximum of 4% VAT/ CST
A correction of duty structure anomalies for sectors such as pharma and durables
Restoring service tax exemption to small residential complexes (having up to 12 units)
Announcement of clear roadmap for introduction of GST (goods and services tax)
India elected a new government at the Centre with the hope that the common man may finally find relief from the longstanding pain points of lack of 'bijlee, sadak, paani', see an increase in employment opportunities for its youth and a decrease in inflation.
Here are some key indirect taxes related expectations that could push the common man's agenda to the fore.
It is expected that the finance minister could announce a string of incentives to key sectors such as power, road and infrastructure in order to increase supply and decrease cost of generating electricity, ultimately benefitting the consumers.
Such measures could include restoring exemptions to mega and non-mega power projects, further exemptions on domestic procurements, and listing of natural gas as a 'declared good' attracting a maximum of 4% VAT/ CST at par with coal and crude oil.
The manufacturing sector, which saw its output shrink in the last fiscal, is also expecting announcement of revival measures, which could lead to creation of more job opportunities, boosting the overall feel good factor in the economy. The once much-touted SEZ policy of the government has only seen part success, primarily in the IT/ITeS sector, while growth in manufacturing or trading zones has been limited. The industry is of the view that the government should significantly revamp this policy to make it more investor-friendly, as part of its agenda to promote India as a manufacturing-exports hub and to create more jobs.
In order to contain inflation, steps are required to be taken to reduce the tax burden on prices of goods and services.
In this context, one key expectation is a correction of duty structure anomalies (finished products attract lower duty than inputs) for sectors such as pharmaceuticals and durables. Also, urgently required is an amendment to the levy of Special Additional Customs duty (SAD) of 4% on imports, which has led to multiple issues, including an inverted duty structure for manufacturers and delays in grant of refund for traders.
A simpler SAD regime should be implemented with the levy restricted only to imports for final consumption or by service providers, and the rate being lowered to 2% (equal to present CST rate).
The industry is also expecting suitable amendments to the definition of "input service" under CENVAT Rules to remove the restrictions imposed in recent past on various services which are per se essential for running the business (example, setting up of factory/ office premises, services related to civil construction and so on), so as to ensure that manufacturers/ service providers are able to avail credit on all taxable services consumed by them, thereby reducing the cascading impact of indirect taxes on prices.
Rising real estate prices is another cause of concern for the aam aadmi, and the same is augmented by levy of multiple taxes (VAT, service tax, stamp duty) by the central and state governments. To partially reduce the burden on the middle-class, consumers are expecting that the FM should restore the service tax exemption to small residential complexes (having up to 12 units), which was withdrawn in July 2012.
A key step to attract investment into the country is improving India's ranking in terms of ease of doing business – this includes ensuring lesser policy interpretational issues and an overhaul of the tax litigation process. It is hoped that impact of the recent SC ruling in case of Fiat, which particularly hit the auto, consumer durables and FMCG sectors, would be nullified by clarifying that merely selling at a loss cannot be viewed as duty avoidance. The announcement of a clear roadmap for introduction of GST (goods and services tax), a long pending tax reform, should further improve investor sentiment.
With fiscal deficit being at alarmingly high levels, the government will have to ensure the common man does not bear the brunt of it – hopefully, the FM will strike a fine balance between containing inflation and improving revenue generation.
The writer is tax partner at EY. Views are personal