Monday, 30th October 2017

E- paper

Commitment to GST deserves praise


  • Published 1.03.15

Given that this was the first full budget from the new government, the expectations were riding high on all fronts. Specifically on indirect taxes, industry was expecting the finance minister to lay down the roadmap for introduction of GST, promote Make in India campaign of the government and enhance the ease of doing business in India.

Looking from this perspective, the high point of the budget is the strong commitment shown towards roll out of GST. By referring to 'GST' 8 times in his budget speech, the finance minister has left no doubts about the intent and seriousness of the government towards ensuring the implementation of this mammoth reform from April 2016.

In fact, with limited changes in the prevailing indirect tax regime, the finance minister has tried to bring the current system closer to the likely GST framework. A higher allocation of revenues to states would also go a long way in reducing the trust deficit that exists between the Centre and states, which is essential for on-boarding of states.

Increase in service tax rate from 12.36 per cent to 14 per cent is perhaps the most radical proposal in the budget and is inviting criticism from all quarters, specifically from the aam aadmi.

However, a dispassionate assessment shows that this was imperative, and will serve two objectives in one go. Firstly, this will provide much needed additional revenues to the government exchequer, which has become even more critical now with a larger share of central revenues being passed on to the states. More importantly, the hike will make the transition to GST less abrupt, as services will be taxed under GST at a higher rate (expected between 16 per cent to 18 per cent).

To incentivise domestic manufacturing, the issue of inverted duty structure has been addressed for various items including IT products, fertilisers, microwave ovens, refrigerator compressors, etc. Basic customs duty rates of raw materials used in the manufacture of various products (including TV, tablet computers etc.) have also been reduced.

This is along the expected lines, and should give the much needed respite to the industry.

However, much to the disappointment of industry, no measures have been proposed to liberalise and rationalise the Cenvat credit framework, which is one of the key features of any GST regime across the globe. This seems to be a conscious call, given the fiscal pressure.

  • Jain is partner-indirect tax & regulatory services, KPMG India