India Inc needed a demonstration of intent for GST and it got it

Last year, we held our breath in anticipation for the post-election Union Budget that was presented by the Finance Minister for proposals and announcements that would mirror the tremendous sentiment of the elections.

For some people, what was finally presented was slightly anti-climactic, while for others (perhaps the more measured ones among us) it may have been a demonstration of purposeful restraint and maturity. Whichever way it was perceived, the overwhelming common opinion was– “let’s wait for next year”. 

So the question now is, “Has Union Budget 2015-16 lived up to the expectation?” There may not be a simple answer for this. With all the complexities of managing the economic and political sensitivities of one of the largest democracies in the world, there are bound to be some hits and some misses.

The tax proposals this year were centred on six broad themes — Curbing black money; job creation; revival of growth; investment (Make in India); reducing bureaucracy; and increasing transparency — trying to make changes that will positively impact key facets of all Indians.

In a clear push for “Make in India”, proposals towards reductions in customs duties, exemptions from special additional duties of customs and roll-backs of Central Excise duties should give relevant industries a breather.

These are clear measures to take further steps towards addressing the issues of reducing costs of raw materials (both imported and locally sourced) and rectifying the anomaly of inverted duty structures that local manufacturing has been suffering with.  
Perhaps the biggest and understandably obvious target is Service Tax. In a clear move that admittedly has the approaching GST implementation in mind, the rate of Service Tax has been proposed to be increased.

The hike would be notified at a later date and the additional “Education” and “Secondary & Higher Education” cesses would be subsumed into the new rate, thereby taking the earlier effective rate of Service Tax of 12.36 per cent to an even 14 per cent.
While there are a few new additions to services that are to be kept out of the service Tax net, the bulk of the proposals in this regard have been towards pruning the Service Tax Negative List and related exemptions, thereby effectively broadening the Service Tax base even further. 

Rationalisation of cesses

For a vote of confidence towards efficiency and transparency, the rationalisation of cesses into a single effective rate of duty has been proposed. Additions to the list of goods to be governed under the Retail Sale Price-based approach under Central Excise increase clarity and certainty on valuation ambiguities.

Announcements that online Service Tax and Central Excise registrations to be processed within two days, the extension of the time limit of 6 months to 1 year for availing CENVAT Credit on inputs and input services and assesses being permitted to issue digitally signed invoices and maintain electronic records are all very positive measures.

If there was something to take away from the Indirect Tax proposals, it would be the statement of intent and the immediate measures proposed vis-à-vis GST implementation from April 1, 2016.

Whether it was proposals regarding rationalising Excise Duties rates, increasing the rate of Service Tax or further widening the Service Tax base, the message is clear: If India Inc needed a demonstration of commitment and intent for GST, it got it.  
(The writer is Abraham P Kuruvilla — Tax Partner, EY India)