Budget 2016: Make In India, rationalisation and simplification of taxes the overarching theme

The flavour of the Budget from a tax perspective was set out in the nine-point agenda that the Finance Minister articulated in his speech. A strong push to Make In India seems to be the overarching theme, with the next being rationalisation and simplification.

Changes in the customs and excise duty to reduce cost and improve competitiveness. The government has simplified and rationalised the CENVAT Credit Rules which have been amended, so as to improve credit flow, reduce the compliance burden and associated litigations, particularly those relating to apportionment of credit between exempted and non-exempted final products/services. The facility of filing revised return has been extended to manufacturers.

As a measure of trade facilitation, deferred payment of customs duty to importers/exporters with proven track record and customs single window project is proposed to be introduced. Also, new class of warehouses added to enable storage of specific goods under physical control of the Department.

An Infrastructure Cess of 1 per cent on small petrol, LPG, CNG cars, 2.5 per cent on diesel cars of certain capacity and four percent on other high engine capacity vehicles has been introduced on motor vehicles making purchase of cars especially luxury cars more expensive.

While there is no change in the service tax rate, the introduction of Krishi Kalyan Cess which is creditable and proposed to be levied at 0.5 per cent on value of taxable service is a step towards aligning the existing tax regime with the proposed GST structure. However, the Swachh Bharat Cess had open issues around its credit and possible cascading effect which has not been clarified.

With respect to services, the negative list of services has been trimmed and items covered in the negative list have been shifted to mega exemption notification. One of the important changes in the list of "deemed" services is the addition of spectrum license fees payable by telecom companies to the Government.

Now, service tax would have to be paid on such licence fees under reverse charge. While this reverse charge payment would be creditable, it is proposed that credit would be allowed over the period of the license; thus resulting in a big cash flow impact on such companies.

Also, inbound ocean freight has been made liable to service tax. This would mean that for services received from foreign shipping companies, recipients would have to pay service tax under reverse charge on the freight amount. It would be important to note that such freight gets included in the value liable to customs duty. Therefore, would such application of service tax lead to double tax in certain cases would need to be examined and debated.

All services received from the government, except for a specified list, would not be liable to tax under reverse charge.

For the purpose of rationalisation, the interest rates on delayed payment of duty/tax across all indirect taxes is proposed to be made uniform at 15%. However, the only exception applies to a situation where service tax is collected but not deposited with the Central Government – an increased rate of 24% would apply.

With respect to dispute resolution, an attempt has been made by introduction of Indirect tax Dispute Resolution Scheme, 2016 wherein no penalty will be levied in respect of cases with disputed tax up to Rs 10 lakh. Further, cases with disputed amount of more than Rs 10 lakh to be subjected to 25 per cent of the minimum of imposable penalty. Also, there is a proposal to introduce 11 new benches of CESTAT.

Also, an increase in limitation period from one year to two years has been introduced in cases not involving fraud, suppression of facts, wilful mis-statements etc.

In the end, the proposals are largely aligned to the goals set by the finance minister.