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Interim Budget 2019 – No major changes expected on indirect taxes

Interim Budget 2019 – No major changes expected on indirect taxes

Interim Budget 2019 – No major changes expected on indirect taxes
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By Sachin Menon  Jan 28, 2019 9:52:42 AM IST (Updated)

As GST implementation completes two years, it is essential that old disputes are closed on a priority basis.

The upcoming Budget would be the last under the present term of the current government and may not see major changes in policies or tax rates. It would be an Interim Budget till the next government is elected; though the finance minister has intimated that larger interests of the nation would determine what will be part of the Interim Budget.

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The key concern for the government would be breaching of the fiscal deficit target of 3.3 percent of the GDP, with a major contributing factor being the revenue shortfall from GST collections. The average monthly GST collections have been hovering around Rs 96,000 crore as against a target of more than Rs 1 lakh crore. GST collections may not increase significantly in the coming days as well due to the recent reduction in GST rates and increase in threshold limits for exemption and composition scheme turnover. Further, many states have not met their GST collection targets, and the government’s promise to meet this shortfall would add further strain to its finances.
While GST may not be discussed in the Budget, as decisions are taken by the GST council during its meetings, the industry would expect certain changes on customs duty.
The healthcare industry has for long sought complete exemption from customs duty on life saving drugs and medical devices. Also, rationalisation of exemptions/concessional duty rates on various medical devices can avoid classification disputes leading to unnecessary litigation. The industry would also expect restoration of the exemption granted to drugs which were/are part of the National List of Essential Medicines, which satisfy the priority healthcare needs of the population. These requests if acceded, can go a long way in making healthcare more affordable in the country.
There has been significant disruption in the electronics industry space, with increase in customs duty on components and finished products in the last one year. While the increase in duty rates may have been a measure to reduce imports, till such time there is a strong presence of component manufacturing in India, the manufacturers of finished products would face increased costs due to increased customs duties. The government would need to relook at its policy, so as to avoid any adverse impact on this industry.
The implementation of GST saw businesses face many issues in transitioning its input tax credit from the erstwhile regime. While these issues are being looked into by the GST authorities, there is no clarity on the excise duty or service tax paid post GST implementation, which would have otherwise been available as credit, but for the GST implementation. For e.g. service tax payable by an assessee on reverse charge basis, pursuant to an audit conducted by the authorities – had GST not being implemented, the assessee would have been able to claim credit of such tax paid. The government should provide a suitable mechanism to claim refund of such erstwhile taxes paid or allow credit of the same under GST.
As GST implementation completes two years, it is essential that old disputes are closed on a priority basis. Appropriate time limits should be prescribed for adjudication of long pending show cause notices, so as to provide certainty to the assessee.
While the focus would continue to be on improving GST collections and easing compliance, it will also be important for the government to balance the impact on customs duty changes and erstwhile taxes on the industry, without losing sight of the fiscal deficit.
 Sachin Menon is partner and head of Indirect Tax at KPMG in India
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