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Budget 2020: Key takeaways from FM Nirmala Sitharaman's indirect tax proposals

Indirect Tax proposal by FM Sitharaman: In order to curb abuse of the Free Trade Agreements (FTA), suitable provisions are being incorporated in the Customs Act and a review of the Rules of Origin requirements shall be undertaken for import of sensitive items. Here's all the takeaways

Muralidharan Ramaratnam and Chinmay Agrawal         Last Updated: February 6, 2020  | 13:28 IST
Budget 2020: Key takeaways from FM Nirmala Sitharaman's indirect tax proposals
The Customs law could be moulded according to the changing business environment and to ensure ease of doing business

Finance Minister Nirmala Sitharaman's Budget speech was focussed towards three themes of Aspirational India, Economic Development and Caring Society, and on two instruments of governance and financial sector. From the governance perspective, the Budget stressed on making tax administration more efficient and fair and proposed institutionalisation of a Tax Payers' Charter. The government also highlighted its intention of having no tolerance on the issue of harassment of taxpayers by tax officials and assured to re-examine the criminal liability provisions in some of the laws and correct them.

In order to curb abuse of the Free Trade Agreements (FTA), suitable provisions are being incorporated in the Customs Act and a review of the Rules of Origin requirements shall be undertaken for import of sensitive items. Also, new enabling provisions are proposed in the Customs Act for administering the preferential tariff treatment under FTAs by way of increased verification responsibility on the importer. The government also proposed strengthening provisions relating to safeguard duties and duties relating to dumping of goods for protecting and ensuring a level playing field for domestic industry. It is also proposed that some of the Customs duty exemptions which have become outdated, be withdrawn and remaining custom duty exemptions shall be comprehensively reviewed by September 2020 for taking a view on their relevance.

For instance, exemptions relating to CommonWealth Games 2010, exemption under SAARC agreement, exemption to water supply projects for industrial and agricultural use under project imports are being withdrawn. The government is set to align the Customs law with the changing business environment and for ease of doing business, for which they are inviting suggestions to review the Customs laws and procedures along with the exemptions.

Also read: Infographic: The Big Measures of Budget 2020

The government recognised the progress of the medical equipment manufacturing industry in India in the past few years. In order to further boost the sector and provide health services to all, the government proposed a Nominal Health Cess at the rate of 5% on the import value, to be levied as a part of Customs duty, on the import of medical equipment and to use the proceeds for creating infrastructure for health services in the aspirational districts. Inputs/parts used in the manufacturing of medical devices to be exempt from Health Cess. In a measure to uplift exports, the government has proposed to launch in the year 2020, a scheme of providing digital refund to exporters in respect of those duties and taxes levied at the Central, state and local levels (such as electricity duties and VAT on fuel used for transportation) which are not getting exempted or refunded under any other existing mechanism.

Electronic Duty Credit Ledger to be created in the Customs systems which will enable duty credit in lieu of duty remission to be given in respect of exports or other such benefits in electronic form. Lastly, in order to give a boost to Make in India, the government has increased the customs duty rates for several items such as footwear, compressors for refrigerators and air conditioners, refrigerating equipment, printed circuit board assembly and other specified parts of cellular mobile phones, completely built units of commercial vehicles including electric vehicles.

(Muralidharan Ramaratnam, Partner, Deloitte India and Chinmay Agrawal is Manager with Deloitte Haskins and Sells LLP.)

Also read: Budget 2020: New tax proposal may hurt exporters and MSMEs

Also read: Budget 2020: FM Nirmala Sitharaman may announce national logistics policy, set-up a one-stop marketplace

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