Against the backdrop of global pessimism on growth, increased fiscal deficit and continuing credit issues the finance minister presented her second budget for year 2020-21. The budget proposals revolved around three broad contours namely Aspirational India, Economic development for all and Building a Caring Society.
From an indirect tax standpoint, the finance minister indicated that the landscape has significantly changed with the implementation of the Goods and Services Tax (GST) which has successfully moved from infancy to toddler stage. While no major changes have been proposed under the GST framework, the finance minister has reinforced the timelines for introduction of new return formats and implementation of e-invoicing in a staggered manner. The shift in compliance framework is expected to curb revenue leakages due to bogus invoicing and reinstate credit matching concept. The other indirect tax proposals are largely focused to promote the flagship project of the government, namely, ‘Make in India’, digital economy or quantum technology and reducing import dependence.
From the standpoint of customs laws, there have been some major fiscal and non-fiscal announcements. On the fiscal front, the government has introduced Health Cess at the rate of 5 percent ad valorem on import of medical equipment to promote domestic manufacturing. The medical devices which are otherwise exempt from the levy of Basic Customs Duty (BCD) or inputs/parts used in manufacture of medical devices will be exempt from levy of Health Cess. Likewise, an increase in import duty has been proposed on import of various products both by way of increase in BCD rate and withdrawal of earlier exemption from BCD / Social Welfare Surcharge. The select imported products which are likely to get impacted due to increase in customs duty rate include specified parts/components for power transmission projects, compressors of refrigerators/air-conditioners, optical disk drives, MP3 or MP4 or MPEG4 players etc. Withdrawal of exemption may have an inflationary impact on such items.
In order to incentivise domestic electronic industry, the government has proposed to increase BCD on Printed Circuit Boards Assembly (PCBs) of cellular mobile phones from existing rate of 10 percent to 20 percent with effect from April 1, 2020. Further, exemption from BCD on Ringer, Display Assembly and Touch Panel used in manufacture of mobile phones is proposed to be withdrawn and a levy of 10 percent is proposed to be introduced as per Phased Manufacturing Programme (PMP), in a phased manner by October 1, 2020. However, parts used for manufacturer of Ringer, Display Assembly and Touch Panel have been exempted from BCD to encourage value addition / set up of downstream manufacturing of components / parts of mobile phones in India. The finance minister also announced that a new scheme will be launched for encouraging manufacture of mobile phones, electronic equipment and semiconductor. The details of the scheme will be known in due course. Likewise in the auto sector, the BCD on electric motor vehicles under PMP has been proposed to increase by 5 percent to 15 percent depending upon the manner of import (like CBUs/SKD/CKD) to encourage domestic manufacturing.
Impetus to digital economy
On the non-fiscal front, more stringent compliance requirements have been introduced for administration of Rules of Origin under Free Trade Agreements (FTA). Certain obligation has been cast on the importer to possess sufficient information to prove country of origin criteria. In case of a failure to submit these information in a timely manner, the customs authorities can deny benefit of reduced BCD under FTAs. Further, the powers conferred upon the Central government to prohibit uncontrolled importation of any goods which cause injury to the economy of the country are likely to raise a new line of disputes between importers and the customs authorities.
With the overwhelming response from Sabka Vishwas Scheme which was introduced last year to settle pending disputes under Excise and Service Tax, the government has introduced similar scheme for pending disputes under the Income Tax Act under the name of ‘Vivad se Vishwas’ Scheme (no dispute but trust), however, there has been no announcement for coverage of disputes under Customs Law.
With a special impetus to the digital economy and startups, a new faceless assessment scheme has already been introduced in the last year’s budget. In order to impart greater efficiency, transparency and accountability, the finance minister has proposed faceless appeal on the lines of faceless assessment. Freeing taxpayers from tax harassment has been a stated objective.
The overall theme of the budget proposals on indirect taxes are expected to bring ease of doing business and foster domestic manufacturing, although the announcements fall short of India Inc. expectations of bold policy measures for revival of derailed economic growth and consumption.
Gautam Khattar is Partner – Indirect Tax with PwC India. Kishore Kumar, Director – Indirect Tax also contributed to this article.
First Published: Feb 3, 2020 6:00 AM IST
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