Tuesday, March 1, 2016

The Finance Minister rose to present his third budget by stating that the global economy is weak but India has done well

The Finance Minister rose to present his third budget by stating that the global economy is weak but India has done well. With a fiscal deficit target of not exceeding 3.5% as budgeted, the Finance Minister surely seems to have done his bit to make it happen. The Finance Minister very clearly seems to have focused on empowering the ‘Make In India’ initiative by removing customs and excise duty exemptions on a variety of goods.

The thrust seems to be more on electronics, hardware and the infrastructure industry where duty exemption has been provided to imported parts and components for manufacture of chargers/adapters, speakers (to be used for manufacture of mobile phones), parts &components for use manufacture of routers, broadband modems, set-top boxes, DVRs, CCTV cameras etc.

These exemptions are available only when the companies import such items for their actual use since direct import of these items (without the importer actually using such imported goods) has been made taxable on import. Prolonged litigation seems to have taken a toll on Government’s administration machinery and this seems to be corrected by proposing a one-time Dispute Resolution Scheme allowing the tax payer to settle the tax dispute pending with the first appellate authority. The Budget also seems to encourage ‘export of goods’ by not only announcing a widening of the duty drawback schemesbut also providing a retrospective amendment to allow refund of input service tax credit on services used beyond the factory gate for manufacture of goods subsequently exported out of India.

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This is a welcome measure considering the retrospective amendments are generally towards garnering tax rather than allowing tax benefits. A great push has also been made to affordable housing sector by way of exempting service tax on construction projects involving small dwelling units and also exempting the concrete mix manufactured at site from 12.5% excise duty. This is surely going to reduce the tax burden on the sector, making cash bled housing sector a slight fillip. The much-needed demand for reducing interest rate on delayed payment of customs & excise duty and service tax seems to have found a favourby the Finance Minister with the rate getting reduced from 18% to 15% subject to few conditions.
On the aspects of ease of doing business that has been one of the mantras of Mr. NarendraModi to the investors, few measures seem to be visible on a first look of the Finance Bill. Increase in monetary limits for prosecution, restricting the situations for arrest of defaulting taxpayers and introducing the provisions for deferred payment of customs duties for certain classes of importers and exporters seem to be a welcome measure. Overall, the Budget seems to be quite populist with a larger focus on creating value addition in India, remove cascading effect by streamlining credit mechanism and create a conducive environment for doing business with ease.

Source: Nimish Goel
Partner & Head, Indirect Tax, International Business Advisors
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