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Budget forecasts include changes to the GST and the reduction of import tariffs.
Everyone is looking forward to the Union budget 2022 on February 1st, as they are every year. This becomes even more critical in the context of the pandemic’s third wave.
There is no doubt that the changes suggested in the Budget will affect everyone in this country, whether they are wealthy or poor, employers or employees, sellers or consumers. The policies and framework enacted in the Budget serve as the economy’s road map for at least the next fiscal year.
India’s indirect taxation system is no exception. While changes to GST rates and procedures occur throughout the year as a result of GST Council meetings, changes to the statutes are only suggested through the Finance Bill, which is announced during the Parliament’s Budget session. Similarly, considerable tariff and non-tariff revisions to Customs and Central Excise rules are envisaged, which would undoubtedly have a significant impact on the growing urge for indigenous manufacturing towards a self-sufficient or Atmanirbharat economy.
Changes in the Goods and Services Tax that are expected
Despite the fact that the GST law has been in place in India for four years, there are a slew of concerns that need to be addressed, many of which have been highlighted by experts, economists, and industry insiders. Reforms that are in line with current economic challenges and scenarios are also essential.
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With the repeal of GST, it is envisaged that changes in the auto sector will be implemented. Compensation cess on the sale of two-wheelers, as well as a reduction in the tax rate from 28 percent to 18 percent. Because two-wheelers are widely used, particularly in rural regions, they should be taxed as efficiently as possible. Furthermore, in the light of the current epidemic, health insurance has become a must-have, and a premium drop from 18 percent to 5% will benefit the insurance business significantly. Further, as a long-standing demand of industry, particularly textiles and fertilisers, a provision allowing refund of input services in the event of an inverted duty structure may be on the Finance Minister’s agenda.
GST has recently been chastised for its onerous compliance requirements and tight timeframes. It is interesting to add that presently, any rectifications in GSTR-3B may only be performed by way of rectification in GSTR-3B of succeeding months, which eventually makes compliances laborious. As a result, an enabling clause allowing GSTR-3B amendment up to a particular point in time within the same month will bring relief to all Indian enterprises.
Also, the requirement set in the GST Act providing for six-month time limit for issuance of credit note needs to be reassessed in view of the demands raised by specific industries, particularly those dealing into educational and stationery products whose majority sales take place during the fourth quarter of a financial year or in case of long commercial disputes. Due to the restriction, tax adjustments on sales returns after September are impossible to pass on. As a result, this period should be extended at least until the annual return filing deadline.
In some cases, conflicting rulings by advanced ruling authorities and courts have resulted in ambiguity. The validity of input tax credit on CSR expenses is one such problem, where the words “in the course or furtherance of business” have been interpreted differently.
A second advance judgement has been issued on the question of GST responsibility for the use of common services by the head office and other branches/units. Such ambiguity is causing doubt on important topics and has become a source of frustration for enterprises with a presence across India. It’s past time for the Finance Bill to clearly define the scope of activities and put the matter to rest. Another related issue is the imposition of GST on mining lease royalty payments.
A second advance judgement has been issued on the question of GST responsibility for the use of common services by the head office and other branches/units. Such ambiguity is causing doubt on important topics and has become a source of frustration for enterprises with a presence across India. It’s past time for the Finance Bill to clearly define the scope of activities and put the matter to rest. Another related issue is the imposition of GST on mining lease royalty payments.
It is also envisaged that appropriate decisions on the establishment of the GST Appellate Tribunal will be made in the Budget, particularly in light of the high courts’ overburdening with GST-related matters. The Supreme Court has already ordered the government to begin steps toward establishing the authority, which has managed to elude the lawmakers’ objectives.
Changes in Customs that have been proposed
Aside from GST, adjustments are expected in the form of a reduction in the rate of duty on imported items. Basic Customs duty on copper ores and concentrates is scheduled to be decreased from 2.5 percent to nil. This will bring relief to the country’s iron and steel industry. Customs Spare parts used in the manufacture of medical equipment, which are now reeling under an inverted duty structure, should also have their duty decreased. Similarly, the rate of duty on crucial raw materials used by aluminium manufacturers is likely to reduce. Gold’s basic customs charge is also scheduled to be decreased from 7.5 percent to 4%.
The current ICEGATE, DGFT, and SEZ online portals should be combined into a shared digital platform that provides all services to users under a single canopy to make customs compliance easier. In the coming budget, a strategy to meet this expectation could be established.
In light of this, it will be fascinating to see how the Budget unfolds and sets the tone for the future of the sector. It should try to strike a balance between focusing on gross collections and striving to revive the economy, which is on the mend but is undoubtedly still suffering from the pandemic’s negative impacts.