The Budget for 2015-16 has raised very high expectations for three reasons. First, it will be the first serious Budget by the Narendra Modi government. Second, it has to be consonant with the 'Make in India' principle. Third, it will have to be in consonance with the impending goods and services tax (GST). I am concentrating on central excise and service tax here and not on customs which requires a separate discussion.
For this above purpose, three principles that should be followed are (i) stability (ii) simplicity and (iii) conformity to GST. I shall elaborate on them now..
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Stability has been a major consideration for the promotion of investment in India and for 'Make in India'. This can be achieved by keeping the two major rates at six per cent and 12 per cent in excise. There should be no change also for service tax rate. The need for more tax revenue will have to be met by abolishing exemptions, which will broaden the tax base.
The other way to ensure stability is to come clean on retrospective taxation. It must be made clear that retrospective tax is essential for technical corrections and preventing abuse, but none will be introduced merely for revenue. That should silence the aggressive critics and satisfy those who understand the issue. Another way to ensure stability is to stop the indiscriminate filing of appeals in tribunals, high courts and Supreme Court. The government has the tendency to linger with litigation till it reaches Supreme Court. That makes things uncertain. The Budget must clearly announce that such a tendency has to be curtailed. And to increase disposals of tribunals, the powers of single judges must be increased to 100 million instead a few hundred thousand, as of now.
Simplicity is another way of making the Budget investment-friendly. While there are two rates of 6 and 12 percent, the two rates occur in almost every chapter.
Pastries coated with chocolate or without chocolate attract different duties. Then there are fixed rates in chapters like tea, bidi, cigarettes, cement, mineral oil, aluminum circles, molasses resulting from extraction of sugar etc. They can be adveloremised, (except cigarettes) without any problem. When GST is coming after two years, why not advaloremise now itself and see what problems arise?
Then there are other rates like 14 per cent in mineral oil, and 24, 27 and 30 in the motor vehicles chapter. They need to be harmonised with the general rate sooner than later. The remedy is to make "one chapter, one rate" as far as possible except chapters for tobacco, mineral oil and motor vehicles.
Conformity to the impending GST is another big issue. GST is just two budgets away. Now is the preparation time. The first thing to do is, to shed the exemptions away, particularly lengthy ones as 344 entries with conditions and big lists of goods. If they are not buried now, at the time of GST it will be a Herculean task to do everything at a time.
Second, the undue enrichment law will have to go. Excise and service tax have this law, but others such as value added tax (VAT) do not have it. In any case it is a highly litigated law which prevents refund being given smoothly. This law has made business more difficult than before the law was there. The conclusion is that a slew of actions have to be taken for making an investment-friendly budget . They are the following:- (i) Introduce "One chapter, one rate", (rates remaining 6 per cent and 12 per cent) except for chapters on tobacco, mineral oil and motor vehicles (ii) Convert all items into advalorem except bidi, cigarette (iii) Remove exemptions drastically with conditions and Lists (iv) reduce litigation by having faith in Appellate Authority (v) Greater empowerment to single benches of tribunal to expedite decisions (vi) Abolish the Unjust Enrichment law (vii) Clarify that retrospective effect will be resorted to only for technical correction or preventing misuse but not for the sake of just revenue only (viii) Empower Advance Ruling Authority to give ruling to Indian manufacturers, or importers even after manufacture, or import has taken place, but before litigation has started and (ix) finally announcing in the Budget that fairness in collecting revenue will be followed and there will be no terror tactics.