Citizens, primarily the business community, are awaiting anxiously the announcement of the Union Budget 2014/15. The ascent to power of the Narendra Modi-led National Democratic Alliance has kindled hope among the business community which has so far been trying to survive in an unstable economy. All eyes are now on Finance Minister Arun Jaitley as he prepares to unveil the Budget in Parliament on 10 July, 2014.
A stable tax regime has a substantial role to play in economic growth. Indirect taxes are a major contributor to the tax revenue. People are expecting that certain tough measures may be announced in the tax proposals of Budget 2014/15.
A simple tax regime clubbed with easy procedures, effortless compliance and straightforward interpretation of tax laws is what is expected from the new finance minister. As a step towards a Goods & Services Tax ('GST'), Point of Taxation Rules and Place of Provision of Service Rules were introduced under the Service Tax Law by the earlier government. However, simultaneously the definitions of input services and inputs (under the Cenvat Credit Rules, 2004) which determine the eligibility of credit pertaining to input services and inputs respectively were amended.
For example, words like 'services used in relation to setting up' and 'activities related to business' have been omitted from the definition of input services. This has led to several different interpretations of the said definition creating an ambiguity as far as the eligibility of credit pertaining to various input services is concerned.
Thus, the aforementioned amendment in the law has slowed down the Indian economy's progress towards GST which has the basic principle to allow credit of all input indirect taxes to business. The new budget is expected to resolve such anomalies in the indirect tax laws. Taxpayers are also looking upto the finance minister to bring clarity on the various ambiguous tax provisions which lead to multiple interpretations thereby causing huge tax litigations. This will help to reduce the number of ongoing as well as future litigations which in turn will facilitate the release of the revenue blocked due to such litigations. Further, a clear road map on implementation of GST is also anticipated.
Industries are also expecting relief on certain other pain points. Auto and pharma industries are suffering heavily due to the inverted duty structure where duties paid on raw materials are more than the duties paid on finished output products. Accordingly, these industries face huge blockage of credit since they are unable to completely utilise the credit pertaining to the duties paid on the raw materials given the fact that the duty on the output finished product is lesser.
Industries like entertainment and software are facing the brunt of double taxation i.e. both value added tax as well as service tax are levied on licensing of copyright and software respectively. Such inconsistencies in the indirect tax laws should be done away with. Also, laying down of simple procedures and issuing of appropriate guidelines for tax authorities so that the tax refunds eligible to exporters are released at the earliest by the authorities without much hassle being faced by the exporters is also on the list of expectations from Arun Jaitley.
Thus, it is now the responsibility of the Modi government especially of its finance minister Arun Jaitley to strike a balance between the expectations of taxpayers and earning the revenue required for the economic growth of the country. The government will have to bear in mind that the people of the country will decide whether Modi 'sarkar' has lived upto to its slogan 'Ache Din Aanewale Hain' after going through the proposals in the Union Budget.
Santosh Dalvi is Partner - Indirect Tax and Payal Thaker is Senior Manager - Indirect Tax, KPMG in India.
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