The budget 2011 aims at addressing the rising inflation on food commodities by promoting the agricultural sector and incentivises sectors such as capital goods, infrastructure and education.
The budget 2011 aims at addressing the rising inflation on food commodities by promoting the agricultural sector and incentivises sectors such as capital goods, infrastructure and education.
The budget attempts to rationalise the tax provisions and clear ambiguities which were resulting in litigation.
On the GST front, the finance minister has announced that the Constitutional Amendment Bill would be tabled in the current session of Parliament. As a step towards implementation of GST, the Point of Taxation Rules, 2010 would come in effect from April 1, 2011.
Further, as a step towards minimising the exemptions under the proposed GST regime, excise duty of 1% has been imposed on about 130 specified items.
Let us now analyse the impact of indirect tax provisions in the budget on the key sectors of India Inc.
The peak rate of basic customs duty (BCD) and excise/service tax remain at 10%. The budget has aimed at promoting the food and agriculture industry by reducing the BCD on import of specified agriculture machinery in India. BCD on raw pistachios, seedless raisins, cranberry products and de-oiled rice bran oil cake has been reduced while excise duty has been exempted on air conditioning equipment and conveyer belt systems for use in storage and warehouse of agricultural produce.
The concessional excise duty applicable on articles such as sugar confectionary, pasties, cakes, paper, textile goods, drugs, medical equipment etc has been increased from 4% to 5% to bring it on par with the VAT rates prevailing in many states.
On readymade garments and other textile articles sold under a brand name, the optional levy of excise duty has been converted to mandatory duty of 10%. BCD and excise duty payable on specified inputs and parts of textile machinery has been reduced.
For the automobile industry, full exemption from BCD and special additional duty has been provided to specified parts of hybrid vehicles and spare battery packs for electric vehicles. Customs duty on import of raw steel has been reduced which will help in strengthening the margins of auto companies. Further, concessional rate of excise duty has been extended to factory built ambulances and refund of excise duty on vehicles registered as Taxi is extended to larger vehicles (carrying capacity up to 13 persons).
The benefits of customs duty has also been extended to water supply and highway development projects while an exemption from excise duty has been provided to goods required for expansion of an existing mega/ ultra mega power projects.
The health sector has also benefited by way of concessional import duty regime on raw materials required for manufacture of syringes, needles, lactose for manufacture of homeopathic medicine etc while the excise duty on sanitary napkins, baby and clinical diapers and adult diapers has been reduced from 10% to 1%.
Various concessions have also been provided to environment friendly items such as LEDs, solar lanterns and inputs required for manufacture of solar cells.
On the service tax front, the finance minister has proposed to introduce tax on services provided by air-conditioned restaurants having license to serve alcoholic beverages. Short term accommodation provided by a hotel, guesthouse etc for a continuous period of less than3 months has also been brought under the tax net.
The budget has also proposed to enhance the scope of existing services such as Life Insurance services, club or association services, authorised service station, business support services, commercial training or coaching services, legal consultancy services and health services. Further, service tax on air travel has been increased from Rs100 to Rs150 in case of domestic travel while from Rs500 to Rs750 in case of international travel.
On the procedural front under customs regulations, the concept of “self assessment” has been introduced for determination of duty payable by the assessee in order to expedite the clearance of goods.
Many provisions under the Cenvat Credit Rules, 2004 have been amended in order to bring greater clarity and reduced litigation. Penal provisions under the service tax have been rationalised in order to improve compliance.
In summary, the budget has aimed at streamlining provisions under the indirect tax legislations in order to curb the menace of litigation and at the same time rationalising the tax provisions to incentivise the identified sectors.
Heetesh Veera is tax partner, Ernst & Young
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