The budget exercise for indirect tax has taken a different dimension since the introduction of the GST whereby most decisions relating to GST policy are debated by the GST Council before being approved. However, the government does tend to declare its policy regarding GST regulations in the Budget and also gives effect to the earlier approved changes which require ratification by the parliament. This is also the time for the government to give effect, comprehensively, to its various policy measures that require a change in customs rates and law, apart from trying to find ways to augment revenues.

The Budget this year has ‘Make in India’ as the governing theme for indirect tax changes. During the past year, the WTO had prohibited India from providing incentives for promotion of export of goods. While India has appealed against the said order, there is a need to incentivise manufacture in India and also to promote exports. While the electronics industry, especially the mobile phone manufacturing industry, is at a threshold of taking a sharp leap, there is a need to support them in developing the necessary ecosystem.

While 95 percent of the domestic mobile phone market is currently being served by phones assembled/ manufactured in India, incentives are required to not only bring value in India but also make the phones competitive to be exported globally. While incentives in the form of production subsidies are possible and will be the way of the future, the government may defer the phased manufacturing programme (PMP) regime for some time.

Need to incentivise manufacture

Incentives should be the way forward to promote manufacturing and developing the necessary ecosystems. Tariffs will continue to be used for protecting the domestic market to promote local manufacture. Accordingly, we shall see duties being imposed or increased on certain products to create disabilities for the importers and promote local manufacturers to become more competitive. There has been a lot of discussion in the media on restricting the import of non-essential imports like furniture, toys, etc. A number of these items are being imported at very low prices and hence making the domestic industry unviable.

While are measures like anti-dumping duty and countervailing duty, it is difficult to apply these, especially in non-standardised products like furniture. These items shall see higher customs duties or greater controls on the ability of the importers to import in this budget. The idea is to again provide impetus to the domestic industry to manufacture these products. On the other hand, some of the ingredients used in the manufacture of products in India may see a reduced customs duty. Examples could be the chemicals used in the making of fertilisers, among other items.

The Sabka Vishwas (Legacy Dispute Resolution) Scheme introduced in the budget of 2019 has been reasonably successful in reducing pending litigations and also gathering the much-needed revenue for the central government. The government may look to explore such schemes in other taxes, specifically customs, given that the appellate mechanisms continue to be served by the same tribunal and courts as central excise and service tax and continue to be plagued by huge pendency.

GST is facing challenges

On the GST front, there are a number of measures that will see the light of the day, given that they have been pending the enactment of the necessary law. GST is currently facing its biggest challenge given that the revenue has not increased commensurate to the expectations. Given the restricted tax base, the pressure is on the government to plug leakages and align the GST structure with minimal exemptions. While all of this may not happen in the budget itself, the government may lay down its strategy for the coming months. The e-invoicing and the new GST return format is set to see the light of day from April 1 this year and may find their place in the budget regulations.

Gone are the days when the Budget was awaited with huge expectations and the indirect tax changes impacted the economy substantially. In the present context, the government continues to make changes to the law and structure of the relevant indirect taxes, during the year, to achieve the desired policy. Yet, while direct tax changes are expected to rule the budget, the industry continues to hope for the required indirect tax changes to give a boost to the economy.

Bipin Sapra is Partner, Indirect Tax, at EY India. The views are personal.

First Published:Jan 31, 2020 6:00 AM IST