The Government laid out its tax initiates into the following five themes:
Measures to curb black money;
'Make in India' by promotion of domestic manufacturing and job creation;
Minimum government and maximum governance to improve the ease of doing business;
Benefits to middle class taxpayers; and
Improving public health through Swachh Bharat initiatives and stand alone proposals to maximise benefits to the economy.
As part of its first steps towards achieving this, some of the key indirect tax proposals made by the Finance Minister are highlighted below:
The Finance Minister reiterated the Government's intention to introduce and implement the Goods and Service Tax by April 1, 2016.
The FM has clarified that GST will put in place a state-of-the-art indirect tax system.
It would be important to note that the FM has tabled the Constitution Amendment Bill for introduction of GST in the Lok Sabha in December 2014 and is pending before the Parliament. The Constitution Amendment Bill is to be passed with two-thirds majority in the Parliament and also ratified by more than half of the States by their assemblies. Apart from this, the GST Bills would need to be passed by the Centre and all States before GST can be introduced in the country.
The passage of the Constitution Amendment Bill in the current Budget
session of the Parliament shall be a true test to determine if the Government shall be able to walk the talk on the GST deadline.
The rate of service tax has increased from 12.36% to 14%. Education cess and secondary and higher education cess is withdrawn. The revised rate of service tax shall be effective from a date to be notified after the Bill is passed and shall not apply immediately.
The FM has proposed to impose a Swachh Bharat cess on all taxable services at the rate of 2% on the value of such services for Swachh Bharat initiatives. The cess shall also be applicable from a date to be notified and would lead to the service tax rate going up to 16%.
The rate of central excise duty is increased from 12.36% to 12.50% by subsuming education cess and secondary and higher education cess.
Education cess and secondary and higher education cess shall however continue to apply on customs duty.
Albeit no change is proposed in rate of Basic Customs Duty ("BCD"), the effective rate of customs duty has increased from 28.85% to 29.44% from March 1, 2015, on account of increase in excise duty to 12.50%.
Steps have been taken for simplification and rationalisation of the CENVAT credit regime:
MEASURES FOR COMPLIANCE ENHANCEMENT
Time limit for availment of CENVAT credit on input and input services has been increased from 6 months to 1 year from the date of invoice to bring much need relief to industry.
Manufacturers can now avail credit of duty paid on inputs even if such inputs are directly received in the premises of the job worker. The CENVAT credit on such inputs availed by the manufacturer would not be affected even if the inputs are subsequently sent to another job worker.
Time limit for return of capital goods to a manufacturer from a job worker has been increased from the present 6 months to 2 years.
CENVAT credit of service tax paid under partial reverse charge mechanism can be taken even on payment of service tax even when service value not paid.
CENVAT credit not available for inputs and input services used in manufacture of non-excisable goods on proportionate amount.
Penalty provisions are rationalised to encourage compliance and early dispute resolution:
The penalty shall be reduced on prompt payments of disputed amount with interest upon conclusion of proceedings. The penalty amounts shall be dependent on whether the matter involves fraud, collusion, mis-statement, etc or not.
Registration process under central excise and service tax has been rationalised:
To promote ease of doing business in India, the FM has proposed rationalisation in the process of registration under central excise and service tax.
Electronic maintenance of excise records and digitally signed invoices:
Assesses have been allowed to issue digitally signed invoices and maintain books in electronic format.
Amendments have been made to Advance Ruling provisions to provide for domestic partnership firms and limited liability partnership firms.
SCOPE OF NEGATIVE LIST/ EXEMPTIONS PRUNED
In its move towards GST and to continue from where the FM left last year, the list of service tax exemptions has been reduced. Accordingly, the following exemptions stand withdrawn:
Service tax is now leviable on admission to an amusement facility. Hence, entry to places where fun or recreation is provided by means of rides, gaming devices or bowling alleys in amusement parks, amusement arcades, water parks, theme parks or such other places shall now be liable to service tax.
Further, entry to entertainment events or a musical performance, pageants, award functions shall now be liable to service tax if the consideration for admission fee is in excess of Rs 500 per person.
Processing of alcohol for human consumption is now brought under the levy of service tax.
Service tax has been proposed on all services provided by a Government Authority to business entities.
Similarly, the following exemptions provided in the past are proposed to be withdrawn:
SERVICE TAX RELATED CHANGES
Services provided by mutual fund agent to a mutual fund or assets management company,
Distributor of mutual funds to a mutual fund or AMC,
Selling or marketing agent of lottery ticket to a distributor.
IT, TELECOM & ELECTRONICS SECTOR
Value of service as per section 67 of the Finance Act expanded to specifically include reimbursable expenditure or cost incurred and charged by the service provider to the service provider - The Delhi High Court ruling in the case of Inter-continental Consultants has been invalidated
Service tax applicable for aggregator of services provided by e-commerce companies like Uber, etc
Service tax on reverse charge basis payable on 100% of manpower and security services in specific cases
In an evident push for "Make in India" manufacturers of IT, telecom and electronics sector shall benefit from the following key proposals:
Manufacturer of tablet computers shall benefit as BCD, excise duty and additional duty of customs on parts, components and accessories used in the manufacture of tablet computers are exempted. Further, excise duty of 2% without CENVAT credit and 12.5% with CENVAT credit shall be levied on tablet computer.
Excise duty on manufacture of mobile handsets including cellular phone with CENVAT credit is increased to 12.50%.
BCD is exempted on High Density Polyethylene (HDPE) for manufacture of telecommunication grade optical fibres or optical fibre cables.
BCD is reduced from 10% to NIL for some categories of digital video cameras and BCD is reduced from 5% to NIL on parts and components for use in the manufacture of these categories of cameras
Special Additional Duty (SAD) is exempted on many goods (except populated PCBs) for use in the manufacture of information technology goods such as computers, laptops, printers, monitors, projectors, etc.
The power sector shall see the following key duty rate changes:
BCD on AEC for use in manufacturing of Renewable Power System reduced to 5%.
Excise duty on pig iron SG grade and ferro-silicon-magnesium for use in the manufacture of cast components of wind operated electricity generators reduced to NIL.
Clean Energy Cess on coal, lignite and peat, is increased from Rs 100 per tonne to Rs 200 per tonne.
To encourage domestic manufacture of commercial vehicles, BCD has increased on import of buses and trucks used for commercial purposes from 10% to 40%
In line with the objective of resolving the problem of inverted duty structure, BCD has been reduced on the following products:
* Sulphuric acid for use in fertilisers
* Anthraquinone for use in hydrogen peroxide, etc.
Full exemption from excise duty to all goods which are consumed within the factory of their production in the manufacture of Agarbatti
The consumer goods sector shall be impacted on account of increase in duties and taxes as follows:
Excise duty of 2% without CENVAT credit and 6% with CENVAT credit is being levied on condensed milk put up in unit containers
As is the usual trend from the previous budgets, there has been an increase in the excise duty on cigarettes by up to 25%.
Similarly, products like cigars, cheroots, pan masala, unmanufactured tobacco, gutkha and chewing tobacco etc have also suffered increased excise duty levies.
Excise duty on mineral water and aerated water has increased from 12% to 18%.
Excise Duty on leather footwear of Retail Sale Price exceeding Rs 1,000 per pair is reduced from 12% to 6%.
The most awaited tax reform for the country, in the form of GST, is keenly awaited by the country. The rate of service tax moving upwards is a sign of the government's intention to introduce GST.
We hope the FM shall be able to deliver on his initiatives for curbing black money, encouraging make in India and introduction of GST by April 1, 2016.
Partner -Indirect Tax, PwC India
Kunal Wadhwa and Siddharth Garg