Chidambaram, before announcing the tax proposals, made it amply clear that clarity in tax laws, a stable tax regime, a non-controversial tax administration, a fair mechanism for dispute resolution and an independent judiciary to provide great assurance is the basis of his tax proposals.
In this backdrop and despite the need to reclaim the peak of 11.9 per cent of the tax-GDP ratio achieved in 2007-08, the finance minister has maintained status quo in basic customs duty, central excise duty and service tax rates. Nevertheless, basic customs duty on set-top boxes has been raised from 5 per cent to 10 per cent and that on imported luxury goods such as high-end motor vehicles, motor cycles and yachts have also been increased. However, customs duty on specified machinery for manufacture of leather and leather goods has been reduced from 7.5 per cent to 5 per cent.
To provide relief to ship- building industry, ships and vessels have been granted exemption from excise duty and accordingly, no countervailing duty of excise will be applicable on imported ships and vessels. Further, excise duty on cigarettes has been increased around 18 per cent. On SUVs, the excise duty has been increased from 27 per cent to 30 per cent. However, the increase is not applicable for SUVs registered as taxies. Also, the excise duty on mobile phones priced at more than Rs 2,000 has been raised to 6 per cent.
From a service tax perspective, the finance minister has accepted the request of the film industry and the exemption from service tax in respect of copyright in cinematographic films granted last year with the implementation of negative list regime has been withdrawn. However, the exemption continues in respect of cinematographic films for exhibition in a cinema hall. Thus, the applicability of dual taxes i.e. value added tax as well as service tax on copyright in cinematographic films continues. With respect to homes and flats with a carpet area of 2000 sq ft or more or costing Rs 1 crore or more, which are high-end construction, the rate of abatement has been reduced from 75 per cent to 70 per cent.
To motivate large number of assesses to file returns and pay tax dues, a one-time scheme called Voluntary Compliance Encouragement Scheme has been proposed. Assesses may enjoy the benefit of the scheme after furnishing truthful declaration of service tax dues since October 1, 2007.
Advance ruling facility has been extended to resident public limited companies, which will be eligible to seek advance ruling on central excise and service tax matters also.
Last but not the least, Chidambaram has taken a step towards implementing goods and services tax by setting aside Rs 9,000 crore towards the first instalment of the balance of CST compensation and by voicing that the next step on the GST bill will be taken forward.
Chidambaram has not proposed any major indirect tax reforms but has ensured that the economy moves towards the implementation of GST.
The views and opinions expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG in India.
Dalvi is partner, indirect tax,KPMG in India