Markets are cheering a substantial increase in expenditure on the health and infrastructure sectors and other policy decisions announced n the Budget 2021.

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A 137% increase in the health sector, the creation of mega-investment textile parks, a development financial institution to provide long-term debt financing, the emphasis on asset monetisation, allocation of more than Rs.4 lakh crores for capital expenditure, the opening up of the insurance sector, the steps to clean up the stressed assets of banks by the creation of the asset reconstruction company, infusion of funds for the recapitalisation of PSB’s limited, disinvestment and privatisation plans – the list is long and impressive.

The revenue deficit for 2020-21 has increased to 7.5 percent which is one of the highest in the last twenty-five-plus years. Meanwhile, the revenue deficit projected for 2021-22 at 5.1 percent.

The net tax revenue for 2020-21 has been revised downward to Rs 13.44 lakh crore from Rs 16.35 lakh crore. The Budget estimates for 2021-22 at Rs. 15.45 lakh crore is modest.

As expected, there has been no change in the GST rates - this being possible only on the recommendation of the GST council.

In her Budget speech, Finance Minister Nirmala Sitharaman said that the Customs duty policy has been reviewed with the twin objective of promoting domestic manufacturing and helping India get into the global value chain.

Thus, very many redundant notifications have been eliminated and an assurance given that 400 more notifications would be reviewed and a “revised duty structure with no distortions” would be put in place by October 2021. This suggests that more changes can be expected within this fiscal year.

Duty has been revised in a host of items- both upward and downward. The more significant increase has been on parts of mobile phones (printed circuit board assembly, camera module) with the existing exemptions on parts of chargers and sub-parts of mobiles also being withdrawn.

Solar inverters and solar lanterns, auto parts, compressors for refrigerators, raw silk, silk yarn, cotton. cotton waste, carbon black, builders ware plastics, cut and polished synthetic stones, are among other items that have seen an increase in duty.

On the other hand, nylon chips, caprolactam, nylon fibre/yarn, gold including gold dore, silver including silver dore , the scrap of iron & steel, semis, flats and long products of non-alloy and stainless steels, the scrap of copper are among the items on which there has been a reduction in duties. The projected revenue gain or loss as a result of these changes is not available.

All the changes proposed are modest and cannot be termed as protectionist.

The more significant change is the introduction of an Agriculture Development Infrastructure and Development Cess (AIDC) as a duty of customs. This cess is proposed to be levied as of now on 25 items, including apples, crude palm, soya-bean, sunflower oils, urea, cotton, silver and gold among others. AIDC is also proposed to be imposed on petrol and diesel which are under Central Excise.

Government has ensured that there is no additional burden on the consumers by reducing the duty rates commensurately on all those items on which AIDC is being imposed. However, the fact remains that this is not a desirable step. GST was conceived precisely to subsume the multiplicity of taxes, including cesses; the Fifteenth Finance Commission has also highlighted the need to ensure that the cess route is avoided. The amount collected as cess would be exclusively shared with the Centre and not with the States. Given the strained Centre-State fiscal relations this was needless, more so since the amount projected to be collected through this route is only about Rs 30,000 crore.

Government has also proposed changes in the Customs Act. An important change being the introduction of the provision that the shelf life of an exemption notification would be two years only unless otherwise specified, varied or rescinded. This was much needed and is a welcome provision. The domestic industry would now have a clear timeline within which they would need to become competitive. The timeline for completion of investigation has been specified now statutorily-two years extendable by another year. This should ensure speedy completion of investigations and certainty to the taxpayer.

Furthermore, an interesting amendment that has been introduced is the provision for imposition of penalty under the Customs Act in cases where input tax credit has been obtained fraudulently and the goods have been entered for exportation.

This again is a welcome measure to check the rampant misuse of the input tax credit in GST. The Finance Minister also acknowledged the efforts of the enforcement machinery -attributing even the record collections of GST revenue in the last few months to their efforts.

The Harmonised System (HS) nomenclature, used for uniform classification of goods traded internationally, is periodically revised by the World Customs Organisation (WCO). These amendments aim to recognise new product streams and technological developments. The last revision is complete and is to come into force from 1 January 2022.

The Budget proposes to amend the Customs Tariff Act accordingly to incorporate the changes. Changes have also been proposed in the Customs Tariff Act, the Central Goods & Services Act, Integrated Goods & Services Act, and UT Goods & Services Act. These are changes which necessarily would have been examined and approved by the GST Council.

The Receipt Budget document highlights the revenue impact or revenue foregone on account of the Free Trade Agreements. In view of the current concern about possible misuse of the free trade agreements, this assumes importance. The revenue impact for the year 2019-20 has been Rs 67,559 crore with the estimate for 2020-21 being Rs 61,938 crore.

The Budget papers reveal progress in the implementation of announcements made in the last Budget. NARVIK, a scheme to achieve higher export credit disbursement is still under examination of the Commerce Ministry. Similarly, the scheme for the reversion of duties and taxes paid on export products announced in the last Budget has not been implemented yet.

Another interesting nugget which the Budget papers reveal is the tax revenues raised but not realised. A total of Rs 10.42 lakh crore comprising of both Direct Taxes and Indirect Taxes is the amount under dispute and hence not realized. These are cases pending a decision in the various courts of the land. The amounts not under dispute but still pending realization is Rs 2.97 lakh crore. The reason for this pending realisation is invariable the unavailability of the person concerned or the lack of assets with the individual for recovery. But given the fact that the amounts are humongous, in excess of Rs 12 lakh crores, the government would do well to create a special task force for pursuing these cases and recover them-or write them off in case the amounts are non-recoverable.

To use a cricketing analogy which is the flavour of the season, the opening batsman has laid the foundation; everything now depends on the middle order batsmen and the rest of the team to ensure that the target is reached.

Views are personal

(Edited by : Aditi Gautam)