Volume VII Part 5 June 10, 2014 14 Business Advisor

What Budget 2014-15 should touch upon

in indirect taxes

Dr Sanjiv Agarwal

Now that for the full Budget of 2014-15, preparations

have set in and we may have an all-new Budget in the

first fortnight of July, 2014, by the first-time but a

bold and talented Finance Minister, there are

expectations from all quarters. India needs and its

citizens expect measures to be taken which provide a

booster to the otherwise stagnant and slow growing

economy. This should be possible as we have a

focused and stable Government at the centre.

This Budget is going to be the first official opportunity to implement the

economic agenda where in Government will have to do a fine but difficult

task of managing the conflicting needs of variety of stakeholders – business

and industry, trade, commerce, exporters, banks, investors, agriculturists,

households, society and politics as well. If India is looking (it should be) at a

10 percent GDP growth in next two years‟ time, the two most wanted steps

would have to be DTC and GST. Sooner the better. The forthcoming Budget

should not only be investor-friendly and taxpayer-friendly but also be

forward looking and progressive giving policy directions and accelerating

growth.

Macro issues

At the macro level, the Budget ought to address economic and social issues

such as inflation control; checking hoarding and black money arising out of

corrupt practices; agricultural reforms including price stabilisation,

infrastructure development and modernisation; boosting industrial

production; housing sector reforms; promotion of tourism and job oriented

skill development, modernisation of transport facilities including railways.

Goods and services tax

Initiated by earlier NDA Government, GST has been talked about by all

Governments since then. Now that we have a stable Government, the

Budget should clearly redefine the road map to much awaited GST and

announce a sunset date for the transition to GST regime. It could be 2015

or even 2016, given the issues pending with the Empowered Committee of

State Finance Ministers on GST.

Volume VII Part 5 June 10, 2014 15 Business Advisor

The BJP Government is likely to make implementation of the Goods and

Services Tax (GST) a priority as it gets down to work. The Finance

Minister held a meeting with officials of the Revenue Department of direct

tax and indirect tax to get an overview of the taxation issues.

The Revenue Department has been asked to prepare a presentation for the

new Finance Minister, detailing the features and architecture of GST, the

areas of disagreement with State Governments and other issues that have

delayed the implementation of the indirect tax regime. The Finance Minister

is also expected to soon meet various State Finance Ministers to sort out

differences and ensure an early rollout of GST. It is hoped that new

Government may be able to move the official amendments to the

Constitution Amendment Bill, key to the introduction of GST in the

monsoon session of Parliament.

It has already been hinted out that the Government is keen on early rollout

of GST. The BJP manifesto had promised to bring on board all State

Governments in adopting GST. Earlier, Gujarat and Madhya Pradesh were

opposed to GST format but since both these states are governed by the

same ruling party as at the centre, there is bound to be greater harmony

this time which may pave a way for earlier implementation. Finance

Minister will have to build consensus about the GST among State

Governments. GST ought to be the top priority in the Budget.

Special Economic Zones

Special Economic Zones (SEZ) are likely to get appropriate boost in the

Budget as these are considered as catalyst of economic growth. Gujarat

itself is an example for this. SEZ scheme since 2005 has attracted lot of

investments but due to imposition of tax (MAT), its growth was hit. Duty

credits, service tax exemptions and hassle free refund mechanism may help

SEZs growth in the country.

Indirect tax wish-list

On the indirect tax front, while there is a need for systemic reforms and

forward looking pro-growth steps in general, the Budget should lay

emphasis on the following specific issues, besides laying a clear-cut road

map for GST implementation:

Simplification of tax/ duty structure with a few rates at least for one

year till the economy is back in black.

Reduction of excise and service tax rates by at least two percent to

boost production, growth in services and address inflation.

Volume VII Part 5 June 10, 2014 16 Business Advisor

Abolish education cess and have separate allocation for the same.

Remove confusion and double taxation / overlapping tax regime with

simultaneous levy of VAT as well as service tax in certain cases.

There should be no tax on tax and definition of sale consideration

must be amended in all VAT laws. This will reduce considerable

confusion and avoid litigation.

Refunds in excise and service tax should be made simpler, faster and

hassle free.

Benefits / exemption to special economic zones be rationalised.

There should be no retrospective tax provisions which give rise to tax

liability. There has to be no room for uncertainty.

Multiple audits and investigations must be stopped. There should be

single point jurisdiction for enquires, investigation, audit,

adjudication etc.

Presently adjudication has no prescribed limits. A time limit for

adjudication process to be completed must be specified. Not only this,

there should be time limit for issuing orders after personal hearing is

done (say 2 months). Erring officials ought to be penalized.

The present law does not provide for transferring the cases to call

book where cases are pending at higher / appellate forums but this

practice is followed blatantly. Such practice only hampers the process

and adversely impacts both-revenue as well as tax payer as tax

liability continues without recovery and assessee is burdened with the

risk of interest, in the event of demand getting confirmed.

Routine aggressive stand on investigations and during search may be

avoided. Arrests be made only when recovery is not forthcoming even

after allowing time / opportunity.

Tax administration ought to be made more accountable and assessee

friendly.

Tax reforms must also look at lowering of compliance costs.

Cenvat credit mechanism may be made simpler and reduce

administrative cost.

Excise duty cuts shall boost industrial growth and consumption.

Tax audit on the lines of income tax may be introduced in Service Tax

Department officers ought to be trained in law, interpretation and

time management skills.

CST rates may be lowered in the wake of GST.

Tax reforms

On tax collection, we will have to move forward and away from target based

revenue generation. Small changes and minor shift in attitude itself could

Volume VII Part 5 June 10, 2014 17 Business Advisor

bring in desired positive results rather than following and lagging behind

the unrealistic targets with no link to economic growth.

Need of the hour is shift in behavioral approach, procedural changes in tax

administration, assessee friendly systems, delivering actual relief to

businesses and hassle free interaction, time bound actions from

Department – be it adjudications, recovery or refunds. At the same time,

incentive to officers may be revisited based on settlement of cases, faster

adjudication, resolution of tax disputes etc. A lot needs to be done on

reforms relating to dispute resolution mechanism with lakhs of cases

pending at different levels of appellate forums. Tax reforms must be such

which lead to increase tax compliance, reduce cost of compliance, focus on

enhancing tax – GDP ratio, reduce litigation, upgrade infrastructure and

treat tax payers as partners in growth.

So far as tax administration and reforms are concerned, it is expected that

besides introducing DTC and GST at the earliest, it should aim at

enhancing efficiency in tax administration, cutting down on tax collection

costs, making law simpler and reducing tax litigation – existing and

potential, substantially.

Epilogue

Let's hope for some positive signals in the Budget. With lots of expectations

from Modi sarkar, tax reforms could be one crucial key to cater to those

expectations.

(Dr Sanjiv Agarwal is Partner, Agarwal Sanjiv & Company, Jaipur)