INDIRECT TAXATION PROPOSALS
1. SERVICE TAX
Service tax needs to confront two important challenges. These are:
The share of services in taxes remains far below its potential. There is a need to widen the tax base and strengthen its enforcement;
Service Tax law is complex and sometimes avoidably different from Central Excise. We need to bring the two as close as possible in the light of our eventual goal of transition to GST.
· The rate of service tax to be increased from 10% to 12%. Works contract composition rate increased from 4 % to 4.8%
· NEGATIVE LSIT OF SERVICES
ü Proposal to introduce negative list approach to taxation of services will enhance the share of service tax in the total tax revenue manifolds. The services specified in the negative list shall remain outside the service tax purview. This approach brings almost all the services under the tax net barring 17 heads of service listed in the negative list. Negative list includes most of the services provided by Government for local authority, services provided by Reserve Bank of India, foreign diplomatic missions located in India, cultivation services, trading of goods, betting, gambling, approved vocational educational education, etc.
ü Certain specified services including health care services, services by religious persons and sports persons, educational services are to be exempted.
ü To support the negative list approach to taxation of services, Place of Supply Rules are proposed to be placed in public domain for stakeholders’ comments. These rules are to determine the location where a service shall be deemed to be provided.
ü As a measure of harmonization between Central Excise and Service Tax, a number of alignments have been made. These include a common simplified registration form and a common return for Central Excise and Service Tax, to be named EST-1.
ü Cascading of taxes has been significantly reduced by permitting utilization of input tax credits in a number of services such as catering, restaurants, hotel accommodation, pandal and shamiana and transport sectors.
· POINT OF TAXATION RULES,2011
ü Rules pertaining to the Point of Taxation are also being rationalized, providing greater clarity and removing the irritants. Cenvat credits in a number of areas are being restored.
ü Definition of continuous supply of service to be amended to capture the entire dimension of the concept. Small service providers [less than 50 lakh per year] being individuals/ partnership firms could discharge the tax on receipt basis.
ü Date of payment is being defined.
· SERVICE TAX RULES, 1994
ü The time period for issuance of invoice to be increased from 14 days to 30 days. For banks and financial institutions providing banking and other financial services, period to be increased to 45 days.
ü Retrospective amendments to reduce existing litigation with regard to infrastructural services being non commercial in nature.
2. EXCISE DUTY
· Enhancement of Standard rate of excise duty from 10% to 12%, concessional rate of duty from 5% to 6% and lower rate of duty from 1% to 2%.
· Large cars currently attract excise duty depending on their engine capacity and length. In keeping with the increase proposed in the standard rate, duty is enhanced from 22 per cent to 24 per cent. In the case of cars that attract a mixed rate of duty of 22 per cent + `15000 per vehicle, it is proposed to increase the duty and switch over to an ad valorem rate of 27 per cent.
· Chassis for building commercial vehicle bodies to be charged ED at an advalorem rate instead of mixed rate
· Officers of audit, cost accountants and chartered accountants appointed under section 14A and 14AA to be empowered to prescribe the time limit within which the units being audited will produce the documents.
· Expansion of deemed manufacture to bring more traders into the excise net in regard to cigarettes, branding of jewelry, cutting/ printing of aluminum foils and match and charging batteries.
· Section 9 amended to provide that the cases of evasion in which the duty exceeds Rs. 30 lakh would be punishable with a term of imprisonment extending to seven years and with fine. Earlier this amount was Rs. 1 lakh.
· Levy of ED of 1% on branded precious metal jewellery is extended to include unbranded jewellery.
· Along with increase in duty to 12%, abatement on readymade garments enhanced from 55%-70% from Retail sales price.
· Increase on basic excise duty on cigarettes of more than 65mm length by adding an ad valorem component of 10 per cent to the existing specific rates. The ad valorem duty would be chargeable on 50 per cent of the Retail Sale Price declared on the pack.
· Nominal increase in basic excise duty on hand-rolled bidis from Rs8 to Rs10 per thousand and on machine-rolled bidis from `19 to `21 per thousand. The existing exemption available to hand-rolled bidis for clearances up to 20 lakh bidis per annum is being retained.
· Crude petroleum oil produced in India attracts a cess of Rs 2,500 per metric tonne under the Oil Industries Development Act has been increased to Rs 4500 per metric tonne.
· Excise duty has been rationalized on for packaged cement whether manufactured by mini cement plant or others.
· The concessional excise duty at 2% has been extended to parts, components and specified accessories.
· Excise duty has been reduced from 10% to 6% on LED lamps, lodine, processed food products of soya, matches manufactured by semi mechanized units, parts of blood pressure monitors and specified raw materials.
3. CUSTOMS DUTY
· Peak rate of customs duty of 10% to be restored.
· Definition of customs airport to be amended to include the air freight stations also.
· Increase in duty-free allowance of baggage allowance for eligible passengers of Indian origin from Rs25, 000 to Rs35,000 and for children of up to 10 years from Rs12,000 to Rs15,000.
· Certain items exempted from customs are – steam coal, LNG & natural gas for generation of electricity, aircraft tyres, waste paper, equipments for road construction projects, tunnel excavation, expansion of fertilizer projects, coal mining projects, raw silking testing equipment.
· Basic customs duty reduced from 7.5% to 2.5% on sugarcane planter, root or tuber crop harvesting machine and rotary tiller and weeder.
· Basic customs duty reduced from 7.5% to 5% on specified coffee plantation and processing.
· Reduce basic customs duty on some water soluble fertilisers and liquid fertilisers, other than urea, from 7.5 per cent to 5 per cent and from 5 per cent to 2.5 per cent machinery;
· Initial setting up or substantial expansion of fertiliser projects are being fully exempted from basic customs duty of 5 per cent for a period of three years up to March 31, 2015.
· Full exemption from basic customs duty is being provided to coal mining projects.
· It is proposed to extend concessional basic customs duty of 5 per cent with full exemption from excise duty/CVD to six specified life-saving drugs/ vaccines. These are used for the treatment or prevention of ailments such as HIV-AIDS, renal cancer, etc
Direct Taxes are estimated to result in a net revenue loss of Rs4500 crore for the year. Proposals relating to Indirect Taxes are estimated to result in a net revenue gain of Rs 45,940 crore, leaving a net gain of Rs 41,440 crore in the Budget.
FAILURES OF BUDGET 2012
- · Failed to address roadmap on implementation of GST, DTC and the New Companies Bill.
- · Have not yet taken into consideration higher fuel and power prices.
- · The Budget has guided for a fiscal deficit target of 5.1% for FY13, and gross borrowing figure of Rs 5.69 lakh crore. Market does not appear to be taking both numbers seriously, even though the fiscal deficit number is something it was hoping to hear.
- · Budget has failed to address the concerns on inflation.
- · More focus on indirect taxes for increase in revenue rather than direct taxes.
- · No big reforms were brought about to improve growth in the economy.
- · The changes to tax laws with retrospective effect will affect investment in India.
- · Budget lacks roadmap for fiscal consolidation.
CONCLUSION
The budget calculations have been prepared with a minimum fluctuation in oil prices. If the pressure on Iran increases then the oil prices may touch $150-$200/ barrel. The government’s measure to tackle fiscal deficit may go out of hands. At the same time with wider definition given to Capital asset it will impact the investments made in India.
Budget 2012 presented by Finance Minister Shri Pranab Mukherjee lacked the push that the Indian Economy was looking for. It was a status quo budget for the common man with some fears of inflation and not much hope for an accelerated growth. It had lot of political constraints and pressure of coalition government.
Whether the budget is a success or a failure, I leave that question open to you to decide for.
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