Union Budget 2020: Finance Minister Nirmala Sitharaman, in her first Budget on 5 July 2019, had announced a slew of measures in the indirect tax regime such as the introduction of a legacy dispute-cum-amnesty resolution scheme, amendments to levy of interest under the GST law, creation of National Appellate Authority for Advance Ruling, etc.
Given the economic slowdown, India Inc. is hopeful of a revival of demand in the economy. It is expected that the FM would take adequate steps to bring in more clarity in the operation of various provisions under the Goods and Service Tax (GST), encourage honest and large taxpayers by removing roadblocks and unnecessary hardships both in terms of compliance burden and automation.
FULL COVERAGE:Union Budget 2020
However, in order to augment GST revenue, the government would be pruning existing exemptions and carrying out upward rate revisions wherever possible. This could be coupled with other steps such as imposing input credit restrictions, initiation of audit proceedings and other anti-tax evasion measures.
Here are some of the expected changes demanded by key sectors in the upcoming Budget.
Automobile: Amidst the falling demand in the automobile sector, the industry has been insisting on a reduction of GST rates from 28% to 18% to rationalise the GST regime for automobiles and boost the demand.
Further, the industry bodies have also suggested the government to abolish the customs duty of 5% on lithium-ion cells to allow the manufacturing of the batteries in the country. It would be worthwhile to see if any concrete announcements are made for this bleeding sector.
Petroleum: Inclusion of the petroleum sector within the GST ambit is a long pending ask. Currently, the sector's exclusion is not only adding to the additional costs but also a disparity in revenue because the same continue to be taxed at the point of origin under the erstwhile Value Added Tax (VAT) regime. Products such as natural gas and air turbine fuel (ATF), are essential for the manufacturing sector and aviation industry respectively, and their non-inclusion continues to add to the tax cost.
Textile industry: Currently, due to the inverted duty structure, while claiming refund of Input Tax Credit (ITC), net ITC excludes input services. Thus, the ITC of input services becomes the cost. The textile industry is eligible for claiming a refund on account of inverted duty structure and has been pitching to allow refund of input services as well.
Moreover, the tax authorities take more than 60 days, which is specified in the CGST laws, to process refunds. This delay severely impacts the working capital management and hence, the industry is hopeful that there would be measures initiated to expedite the process and abide by the limit.
Healthcare: The industry has been long pitching for a zero-rated GST regime or imposing a lower output GST of 5% on healthcare services, primarily due to the non-availability of an input tax credit on goods and services, which they purchase for use in the services. This results in significant cost being passed on to the end consumers of such services. Considering the importance of this sector and the initiatives being taken by the government in extending healthcare benefits to the masses, the expectations of the industry should be given some positive thought that will help to make healthcare services more affordable.
Power sector: Extending GST to the power industry will contribute to the growth of infrastructure. In the current GST, power has been kept outside. Inclusion of power in GST will lower the cost of electricity and make it competitive, particularly, for industries.
Besides the above, some key areas where India Inc. expects clarity in the upcoming Budget are:
Treatment of intermediary services
Information technology sector and entities extending business support functions to their overseas group entities and customers are expecting a clarification regarding the precise meaning and ambit of 'intermediary services' as against 'support services'.
This has already resulted in potential litigation. The industry would be impacted adversely if an 18% GST would be added to their billings, which become a cost to their overseas group entities/customers.
Treatment of CSR activities
Corporate Social Responsibility (CSR) activities are mandated under Companies Act 2013 and in order to encourage CSR spends in excess of mandated limits, it would be appropriate if corporates are not burdened with additional tax cost on account of procurement of CSR services.
A suitable clarification or an amendment in the relevant provisions under the CGST law to this effect would help allow seamless credit on procurement of CSR services as they ultimately add to the expansion of the business as well as build the brand's reputation.
Given the current state of the economy, Budget 2020 is going to be one of the crucial Budget in the second term of the NDA government.
It would be worthwhile to see how the FM strikes the most appropriate balance amidst the ongoing challenges that the industry is facing on the one side, and the issue of dipping revenue and adverse GDP growth that the government needs to address, on the other. A rounded Budget that is rational, positive, pragmatic and beneficial for the industry, as well as the government at large, is the need of the hour.
(The author is a Partner, Grant Thornton India LLP)