Budget 2019: Simplified policy - After consumer bonanza, give more GST relief

The National Democratic Alliance (NDA) government is in the final lap of completing its five-year term and have presented the last budget on February 1, 2019. Given the proximity of the elections which are due in May 2019, as is the tradition there has been a restrain applied in introducing budgetary proposals as compared to a regular budget. The gross domestic product (GDP) data was revised to 7.2% for the last year and the ensuing year and an assurance was made to maintain the fiscal deficit target at 3.4% of GDP for FY19 – a drift from the budgeted estimate largely attributable to the underperformance of indirect tax revenues.

The Finance Minister (FM) did indicate that the goods and services tax (GST) collections during the month of January 2019 was in excess of Rs 1 lakh crore and the average GST monthly collection for 2018-19 were at Rs 97,100 crore (an increase from Rs 89,700 crore in 2017-18). Separately, the FM has proposed the need to grant concessions in personal income tax. More concessions in direct taxes only mean that the reliance on indirect taxes for meeting the tax collections targets, and therefore we expect that the focus on GST collections will increase in the years to come.

Rationalisation has also been proposed under stamp duty regulations. As such, duty is proposed to be collected at one place through the stock exchanges. Duties so collected are proposed to be shared with the state governments on the basis of domicile of buying clients.

Since July 2017 when GST was introduced in India there have been several changes in the Act, Rules and procedures. While there is enough statistic available to prove that the indirect tax collections and compliances have increased since introduction of GST, the 'real growth' would be visible when the tax policy stabilises.

The GST Council (since formation) have met 32 times to review the policy framework and recommend measures to ensure trade facilitation and adherence to compliance. While recounting the achievements in relation to GST, the FM emphasised on the ease in compliances achieved through online returns and e-way bill system, the reduced interface between the tax payer and government, reduction in tax rates for various goods and the reduction in time and compliance involved in movement of goods between various states. The FM also spoke about reduction in the GST burden on home buyers which will be taken up by the GST Council in their next meetings when the group of ministers (GoM) present their report.

Interestingly, rate reductions over a period of time have resulted in a tax loss of Rs 80,000 crore; which may be close to the estimated shortfall in GST collections vis-à-vis targets. Also, that now more than 90% of registered tax payers are on simplified compliances of filing quarterly returns (instead of monthly).

In the near future, industry is looking forward to more clear guidance around the simplified GST return filing proposed from April 1, 2019. With the filing of GST annual returns this year, the focus is also likely to shift to assessments and audits. The government should consider setting up a centralised assessment of books and records, rather than allowing multiple authorities to review, which will usher in reduced time and effort and make outcomes more effective. The government should also consider introducing a detailed assessment cum audit manual to ensure the experience during assessments and audits is not daunting.

With the State Government of Kerala proposing the Kerala Flood Cess @1% on some intra-state supplies, trade would need to augment their IT systems to be able to meet the compliance.

Over the last two months several measures have been taken by the government to rationalise customs duties and procedures. Among others, customs duties have been abolished on 36 capital goods, revised system of importing duty-free capital goods and inputs for manufacture and export has been introduced, along with measures being worked to introduce full and comprehensive digitalisation of export/import transactions and leveraging RFID technology to improve export logistics.

Overall, we expect that there would be more changes in the full budget to be presented post the elections. Such changes are likely to be centered on customs and trade compliance. There are likely to be several trade facilitation measures to improve customs processes and usher a robust post clearance audits.

(With inputs from Amit Bothra, senior tax professional, EY India also contributed to the article. Views expressed are personal)