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Like the last few years, this year also the industry expects the Finance Minister to lay down a clear roadmap to Goods and Service Tax (GST), and ensure its timely implementation.
While in the last few months a lot of positive developments have taken place on this front, a significant ground is yet to be covered. The Centre and States seem to have managed to resolve the deadlock on some of the most critical aspects impacting GST, including CST (Central Sales Tax) compensation.
Despite these developments, GST implementation may take time. In the meantime, one would expect the Finance Minister to continue with the drive to bridge the gap between existing regime and GST. Some of the critical areas that need alignment are tax rates, broadening of tax base, rationalisation of credit scheme, and so on.
While the industry has been demanding reduction in tax rates, given the mounting fiscal deficit, this seems unlikely.
On the contrary, there may be a good case for the Government to increase the service tax rate, to bring it a step closer to the likely GST rate of around 16 per cent. This logic does not apply to excise duty though, as at 12 per cent it is in sync with the expected GST rate.
Industry expects more clarity on taxability of cross-border transactions between head office and branch/ PO, applicability of place of supply rules to certain situations (e.g. transactions involving intermediaries), and so on.
Similarly, on the excise front, the existing concessional rates of 2-6 per cent on some products could witness an increase. Also, the existing list of exemptions may be pruned to meet the twin objectives of revenue augmentation and broadening the tax base.
Another area that merits attention is the Cenvat credit scheme. There is a strong case for liberalising the credit scheme as per international best practices. The industry would want to see the existing restrictions on claiming credit for construction activity, employee-related expenses, and so on, to be withdrawn.
To conclude, a forward looking Budget with focus on broad-basing tax and administrative simplification, should make up (at least to some extent) for the delay in implementation of GST.
With inputs from Siddharth Mehta, Director – Tax, KPMG in India
(The author is Partner, KPMG in India.)
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