INDIRECT TAXES EXPECTATIONS FROM BUDGET 2014-15

[Dr. Sanjiv Agarwal]

The full Budget of 2014-15, preparations have set in and we may have a all - new budget in first fortnight of July, 2014. India needs and its citizens expect measures to be taken which provide a booster to the otherwise stagnant and slow growing economy. This should be possible as we have a focused and stable Government at the centre. This budget is going to be the first official opportunity to document and then to implement the economic agenda where in Government will have to do a fine but difficult task of managing the conflicting needs of variety of stakeholders – business & industry, trade, commerce, exporters, banks, investors, agriculturists, house-holds, society and politics as well.

At macro level, the Budget ought to address economic and social issues such as inflation control; checking hoarding and black money arising out of corrupt practices; agricultural reforms including price stabilization, infrastructure development and modernization; boosting industrial production; housing sector reforms; promotion of tourism and job oriented skill development, modernization of transport facilities including railways etc.

Goods and Services Tax (GST)

Initiated by earlier NDA Government, GST has been talked about by all Governments since then. Now that we have a stable Government, the Budget should clearly redefine the road map to much awaited GST and announce a sunset date for the transition to GST regime. It could be 2015 or even 2016, given the issues pending with the Empowered Committee of State Finance Ministers on GST.

The BJP Government is likely to make implementation of the Goods and Services Tax (GST) a priority as it gets down to work. The Finance Minister held a meeting with officials of the Revenue Department of direct tax and indirect tax to get an overview of the taxation issues. The Revenue Department has been asked to prepare a presentation for the new Finance Minister, detailing the features and architecture of GST, the areas of disagreement with State Governments and other issues that have delayed the implementation of the indirect tax regime. The Finance Minister is also expected to soon meet various State Finance Ministers to sort out differences and ensure an early rollout of GST. It is hoped that new Government may be able to move the official amendments to the Constitution Amendment Bill, key to the introduction of GST in the monsoon session of Parliament.

It has already been hinted out that the Government is keen on early rollout of GST. The BJP manifesto had promised to bring on board all State Governments in adopting GST. Earlier Gujarat and Madhya Pradesh  were opposed to GST format but since both these states are governed by the same ruling party as at the centre, there is bound to be greater harmony this time which may pave a way for earlier implementation. Finance Minster will have to build consensus about the GST among State Governments. GST ought to be the top priority in the Budget.

In any case, GST should be in place by 2016 or earlier, if smooth passage takes place. Keeping this in mind, the existing scheme of Central Excise and Service Tax may not be tinkered with substantially. Budget speech may also indicate the expected GST rate with bifurcation between State GST and Central GST. Efforts should also be made that as many as possible state and local taxes get subsumed in GST (octroi, land building tax, entry tax, toll tax, octroi, cesses etc.).

Special Economic Zones

Special Economic Zones (SEZ) are likely to get appropriate boost in the Budget as these are considered as catalyst of economic growth. Gujarat itself is an example for this. SEZ scheme since 2005 has attracted lot of investments but due to imposition of tax (MAT), its growth was hit. Duty credits, Service Tax exemptions and hassle free refund mechanism may help SEZs growth in the country.

Indirect Tax expectations

On indirect tax front, while there is a need for systemic reforms and forward looking pro-growth steps in general, the Budget should lay emphasis on the following specific issues, besides laying a clear-cut road map for GST implementation: 

• Simplification of tax / duty structure with few rates at least for one year till economy is back in black
• Abolition of Central Sales Tax (CST)
• Reduction of Excise and Service Tax rates by atleast two percent to boost production, growth in services and address inflation
• Abolish education cesses and have separate allocation for the same
• Remove confusion and double taxation / overlapping tax regime with simultaneous levy of VAT as well as Service Tax in certain cases
• There should be no tax on tax and definition of sale consideration must be amended in all VAT laws. This will reduce considerable confusion and avoid litigation
• Refunds in Excise and Service Tax should be made simpler, faster and hassle free
• Benefits / exemption to special economic zones be rationalized
• There should be no retrospective tax provisions which give rise to tax liability. There has to be no room for uncertainty
• Multiple audits and investigations must be stopped. There should be single point jurisdiction for enquires, investigation, audit, adjudication etc.
• Presently adjudication has no prescribed limits. A time limit for adjudication process to be completed must be specified. Not only this, there should be time limit for issuing orders after personal hearing is done (say 2 months). Erring officials ought to be penalized
• The present law does not provide for transferring the cases to call book where cases are pending at higher / appellate forums but this practice is followed blatantly. Such practice only hampers the process and adversely impacts both-revenue as well as tax payer as tax liability continues without recovery and assessee is burdened with the risk of interest, in the event of demand getting confirmed.
• Routine aggressive stand on investigations and during search may be avoided. Arrests be made only when recovery is not forthcoming even after allowing time / opportunity
• Tax administration ought to be made more accountable and assessee friendly
• Tax reforms must also look at lowering of compliance costs.
• Cenvat credit mechanism may be made simpler and reduce administrative cost
• Excise duty cuts shall boost industrial growth and consumption
• Tax audit on the lines of income tax may be introduced in Service Tax
• Department officers ought to be trained in law, interpretation and time management skills
• CST rates may be lowered in the wake of GST.

Tax Administration reforms

On tax collection, we will have to move forward and away from target based revenue generation. Small changes and minor shift in attitude itself could bring in desired positive results rather than following and lagging behind the unrealistic targets with no link to economic growth. Need of the hour is shift in behavioral approach, procedural changes in tax administration, assessee friendly systems, delivering actual relief to businesses and hassle free interaction, time bound actions from Department- be it adjudications, recovery or refunds. At the same time, incentive to officers may be revisited based on settlement of cases, faster adjudication, resolution of tax disputes etc. A lot needs to be done on reforms relating to dispute resolution mechanism with lakhs of cases pending at different levels of appellate forums. Tax reforms must be such which lead to increase tax compliance, reduce cost of compliance, focus on enhancing tax – GDP ratio, reduce litigation, upgrade infrastructure and treat tax payers as partners in growth.

So far as tax administration and reforms are concerned, it is expected that besides introducing DTC and GST at the earliest, it should aim at enhancing efficiency in tax administration, cutting down on tax collection costs, making law simpler and reducing tax litigation – existing and potential, substantially.

Epilogue

Let's hope for some positive signals in the budget. With lots of expectations from Modi sarkar, tax reforms could be one crucial key to cater to those expectations. The forthcoming budget should not only be investor friendly and taxpayer friendly but also be forward looking and progressive giving policy directions and accelerating growth.