Exporters had three expectations from the Budget. The finance minister has delivered on one. Importers looked for simpler tariff and fewer exemptions. Besides a minor change in the manner of calculation of import duties, they get nothing by way of rationalisation or simplification.
The first demand of the exporters was withdrawal of Minimum Alternate Tax (MAT) imposed on Special Economic Zone (SEZ) developers and units last year. Exporters said the government had recanted on its promise to let SEZs be tax-free. The commerce ministry was also of the view that imposition of MAT on SEZ units and developers had made investments in SEZs less attractive. The finance minister has let considerations of fiscal consolidation prevail over the need to revive the SEZ scheme. Second, exporters expected commitment regarding interest subvention scheme. Their demands included higher subvention, wider coverage to include all sectors and continuation of the scheme without any time limit. The finance minister made no mention about the scheme in his Budget speech. Perhaps, he has left it to the Reserve Bank of India to take a call.
The third expectation of exporters was a simpler mechanism for refund of taxes. The finance minister said “... while the problems faced by exporters of goods with respect to taxes on input services was addressed earlier this year, disbursement of taxes that go into the export of services has been an irritant for long”. He talked of a new scheme that would simplify refunds without resorting to voluminous documentation or verification and said such refunds would also be admissible for taxes on taxable services that had been exempted.
The Budget notifications amend Rule 5 of the Cenvat Credit Rules, 2004, prescribing a simpler formula for refund. The idea is to do away with the need to establish one-to-one co-relation between inputs or input services and outputs.
On the imports side, the plethora of exemptions continues, while the peak rates of customs duties have been left undisturbed. The rates below the peak rate — such as 7.5 per cent duty on capital goods — are being retained. The method for computation of education cess and secondary and higher education cess on imported goods has been simplified. Currently, these cesses are first charged on the Countervailing Duty (CVD) portion of Customs duty and thereafter on the aggregate of Customs duties. The portion of cesses leviable on the CVD portion of Customs duty has been exempted so as to avoid computation of such cesses twice. This will bring down the aggregate import duties marginally.
A condition is being inserted in Notification No 21/2012-Customs dated March 17, 2012, requiring the importer of specified goods to declare the destination state and the value added tax (VAT) registration number, where the goods are intended to be sold for the first time after import. This condition would apply to such goods imported on or after May 1, 2012. Cenvat Credit Rules are being amended to permit transfer of unutilised credit of four per cent additional duty of Customs lying in balance at the end of each quarter to other registered premises of the same manufacturer. The enforcement provisions are strengthened to make the officers more powerful. Overall, the Budget does little to make life easier for importers or exporters.
