The longest ever Budget speech had several noteworthy highlights, but offers a little glimpse of the government’s plans for economic revival
By Kulraj Ashpnani and Sneha Ghosh
In the midst of an acute economic slowdown, the Union Finance Minister and her team had the responsibility to steer the Indian economy and restart the growth trajectory. India Inc was also keenly expecting some substantial reforms from the Budget 2020 to increase purchasing power, attracting foreign investment and incentivising domestic market. These over-arching goals, coupled with the ideas of Aspirational India, Economic Development and Caring Society drives this year’s Budget.
While the longest ever Budget speech had several noteworthy highlights, market trends reflect that Budget 2020 has failed to touch the core of the present-day scenario. From a taxation standpoint, undeniably, Direct taxes stole the limelight, while Indirect taxes have been reduced to obscurity. Yet, the changes in Indirect taxes have significant repercussions and are worth analysing.
Under customs, the government has stayed true to its vision of ‘Make in India’. There have been a plethora of changes in customs duty rates; primarily an increase of incidence. Prominent changes include an increase in Customs Duty (CD) rates on furniture, footwear, electric vehicles, inputs for electronic industry (PCB, display assemblies, etc.), mobile phone parts etc.
Optically such rate changes do give a flavour of a protectionist economy, but will surely be an impediment to the large assembly industry, especially the electronics industry, which heavily relies on import of raw materials.
India Inc was also expecting a reduction of multiple cesses, which only complicate the compliances. Therefore, the introduction of Health Cess at 5% on medical equipment does more damage to the overall sentiment, besides impacting the prices of these vital goods.
Regulating imports under Preferential Trade Agreements (PTAs) and Free Trade Agreements (FTAs) has long been the objective of the government. Several checks and balances were placed to ensure the correctness of the claims.
In this Budget, the government went a step ahead by formulating provisions under the Customs Act, 1962 to monitor and regulate such preferential imports. Prima facie, such a check goes against the very grain of FTAs, as a favoured corridor to trade can now be subjected to much arbitrariness.
Further, the introduction of the Electronic Duty Credit Ledger (EDCL) towards disbursement of export incentives is a step in the direction of the upcoming Foreign Trade Policy 2020–2025, i.e., Rebate on Duties and Taxes on Export Products. In a disappointing turn of events, the formal adoption of Taxpayer’s Charter has not been extended to Indirect taxes.
Taxpayer’s Charter, although entirely unheard of in India, is a concept existing in the majority of tax regimes globally. This statutory instrument formally recognises the rights of taxpayers and duties which bind tax administrators. It was quite a shock to discover that protection of the Charter has been extended only to Direct Taxes, leaving out the Indirect tax laws.
Turning to GST law, the government primarily reiterated its commitment towards introduction of new returns and e-invoicing. In a significant amendment, the restriction on availment of Input Tax Credit (ITC) on debit notes pertaining to preceding year’s transactions has been relaxed.
The government has also sealed a glaring loophole by retrospectively stipulating a time limit for transitioning of the former credit. Earlier, high courts had allowed the transition of credit even after the notified time limit. It will be interesting to see whether the amendment will undo the past rulings.
Also, the Budget is a constitutional document representing the government’s economic policy and economic plan for the upcoming year. It is meant to serve as a report card as well as a manifesto of the government.
Budget 2020 gives a little glimpse of the government’s plans for economic revival. For Indirect taxes, several yards remain uncovered for achieving the vision of minimum government and maximum governance.
The authors are director and associate at NITYA Tax Associates. Views are their own. First published on Vatinfoline Multimedia.