Key existing initiatives get a Budget boost

No significant changes in indirect taxes, which will be replaced by GST, <b>says a PwC analysis</b>

Indirect Taxes

While the Union Budget 2017 focused on various themes and reforms, the finance minister (FM) expectedly did not make significant changes in the current regime of indirect taxes, as these will be soon replaced by the Goods and Services Tax (GST). There have nonetheless been some important announcements with regard to the progress of GST and changes which further promote the key initiatives of the government, such as ‘Make in India’, digitisation, ease of doing business, etc.

GST: Soon to be a reality

The FM in his Budget speech highlighted the substantial progress made towards ushering in GST. The GST Council has finalised its recommendations on almost all issues, namely, rates, threshold limits, compensation for states, examination of draft laws and administrative mechanisms. The FM reiterated that the GSTN (IT system) will be ready as per schedule and the government will commence industry outreach programmes from April 1, 2017.

It is interesting to note that some of the exemptions/concessions in duties will be in force until June 30, 2017, which leads one to think that July 1, 2017 will be the potential date for introduction of GST in India.

Promoting ‘Make in India’

The following changes in duty rates are aimed at further promoting ‘Make in India’:
 

• Special Additional Duty (SAD) on import of populated printed circuit boards (Populated PCBs) used in manufacture of mobile phones, which was exempted earlier, will be liable to concessional SAD of two per cent up to June 30, 2017, as against the standard SAD rate of four per cent. This could encourage domestic manufacture of PPCBs in India, apart from manufacture of mobile phones.

• A concessional rate of Basic Customs Duty (BCD) at the rate of five per cent is prescribed on all parts used in the manufacture of LED lights or fixtures, including LED lamps. Further, a concessional rate of five per cent BCD is proposed on all inputs used in the manufacture of LED drivers or Metal Core Printed Circuit Board LED lights and fixtures or LED lamps.

• All parts used in the manufacture of LED lights and fixtures or LED lamps will be subjected to a concessional rate of excise duty of six per cent. 

• A retrospective amendment has been made from January 1, 2017 to reduce the excise duty on motor vehicles used for carrying more than 13 passengers from 27 per cent to 12.5 per cent.

• BCD is exempted on solar tempered glass for use in the manufacture of solar cells/panels/modules, while earlier there was a duty of five per cent. Further, countervailing duty (CVD) is reduced from 12.5 per cent to six per cent on parts/raw materials used in the manufacture of solar tempered glass for use in solar photovoltaic cells/modules, solar power generating equipment or systems, flat plate solar collectors, solar photovoltaic modules and panels for water pumping and other applications.

• Excise duty on solar tempered glass is levied at six per cent for manufacture of solar photovoltaic cells or modules; solar power generating equipment or systems; flat plate solar collectors; solar photovoltaic modules and panels for pumping water and other applications.

• Excise duty is reduced from 12.5 per cent to six per cent on parts used in the manufacture of solar tempered glass to be used for the above purposes.

• Excise duty is exempted on catalysts and resin used in the manufacture of cast components of wind-operated electricity generators.

Encouraging digital payments

The following key exemptions aim at encouraging digital payments:
 

• Exemption from BCD, CVD and SAD on import of micro ATMs (Version 1.5.1), fingerprint readers and scanners, iris scanners and parts/components used for manufacturing these products. The exemption is subject to actual user condition.

• Exemption from BCD, CVD and SAD on import of miniaturised point of sale (PoS) card readers for mPOS (other than mobile phones or tablet computers) and parts/components used for manufacturing these products subject to actual user condition. This is in line with the theme of encouraging the digital economy, as banks have targeted the introduction of an additional one million new PoS terminals by March 2017, and introduction of two million Aadhaar-based PoS by September 2017.

• Exemption from excise duty has been provided to Micro ATMs, fingerprint readers/scanners, iris scanners, miniaturised POS card readers (other than mobile phones) and parts for the manufacture of such goods.

• Point of sale devices and goods used for manufacture of such devices will continue to be exempt from excise duty until June 30, 2017.

Imported micro ATMs and components used in their manufacture have been exempted from basic customs duty and countervailing duty. Photo: Dalip Kumar 

Boosting ease of doing business 
 

• The Research and Development (R&D) Cess Act is to be repealed with effect from April 1, 2017. Consequently, the exemption under service tax to the extent of R&D cess paid will be withdrawn. This is beneficial for manufacturers and service providers who would be able to claim the entire amount paid as service tax, as earlier the R&D cess of five per cent was a cost to such manufacturers and service providers.

• EOUs will be eligible to claim duty exemptions under other exemption notifications (other than EOU-related notifications) subject to fulfilment of conditions specified in the relevant exemption notification.

• The Budget has made a retrospective amendment with effect from July 1, 2010, clarifying the exclusion of land value at the time of valuing works contracts liable to service tax at 40 per cent of the contract value. In cases where land value is included, service tax would be leviable on 30 per cent of the contract value.

• Exemption has been provided for a one-time upfront amount (called premium, salami, cost, price, development charges, or by any other name) payable for the grant of long-term lease of industrial plots (30 years or more) by state government industrial development corporations/undertakings to industrial units from September 2016. The same exemption is being applied retrospectively from June 1, 2007. Wherever tax has been paid, such assessees can claim a refund within six months from the date of enactment of the Finance Bill.

• Excess customs duty paid by an importer will be refunded, subject to prescribed conditions, if such excess payment is: Made before an order permitting clearance of goods for home consumption is made; evident from the bill of entry; and if the duty actually payable is reflected in the reassessed bill of entry in the case of reassessment.  

Other key amendments
 

• No change is proposed to be made to the present service tax rate. 

• Advance Rulings for indirect taxes will now be passed by the Authority for Advance Rulings as constituted under the Income Tax law. It is also proposed to transfer pending applications before the present Advance Ruling Authority to the new authority from the stage at which such proceedings stood as on the date on which the Finance Bill 2017 receives the assent of the President. With this change, it is hoped that the advance ruling applications will be disposed of relatively faster. Further, the disposal time limit for advance rulings has been increased from 90 days to six months.

• Transfer of CENVAT credit on account of sale or merger now requires that the permission for transfer of credit has to be given by the relevant authority within three months (which can be further extended to six months).

• Settlement commission provisions have been amended to allow any person other than the assessee to approach the settlement commission for relief. This may enable directors and other key officials of companies, against whom proceedings are initiated, to approach the commission for relief.

• Consistent with past trends, the government has increased the excise duty rates on cigarettes, tobacco and bidis.

In summary, the FM did not make any major change in the present rates and provisions of indirect taxes, which is also evident from the fact that his proposals with respect to indirect taxes are not expected to result in any significant gain or loss to the government. This also reflects the confidence of the government that it will be able to roll out the much-awaited GST, India’s biggest tax reform.

Pramod Banthia

Partner-Indirect Tax, PwC India

Team members: Keyur Shah and Feneel Shah