The Budget proposals this financial year laid out themes that reinforced schemes such as the Make in India, Clean India, Digital India and the Ease of Doing Business. These have been important initiatives undertaken by the government in the past, and this Budget exercise showed continued thrust on these visions.
Boost to indigenous manufacturing
The proposals sought to boost the domestic manufacturing industry and remove the dependency on non-essential imports. For industries such as automobiles, electronics and steel, customs duty rates have specifically been increased on certain goods, so as to create a level playing field for domestic manufacturers. At the same time, customs duty rates have been reduced and exemptions provided on certain inputs, raw materials and capital goods for specified electronic and IT products, to increase domestic manufacture of such products like mobile handsets and set-top boxes, among others. These are welcome measures and should boost indigenous production.
With an impetus for the electric mobility industry and to cut carbon emissions and uphold the banner of ‘Clean India’, customs duty exemptions have been introduced on parts used to manufacture electric vehicles. Along with this exemption, the government has also moved a proposal before the GST council, seeking a reduction in GST rates on electric vehicles from 12 per cent to 5 per cent. Separately, investment initiatives have been provided to augment setting up of mega manufacturing plants in India, in solar and related advanced technology areas (namely solar photovoltaic cells, lithium storage batteries and computer servers). Another change in reinforcing ‘Clean India’ is the increase in petrol and diesel rates, with the government proposing to increase the Special Additional Excise duty and Road and Infrastructure Cess at Rs 1 per litre each.
E-norms adopted for ease of doing business
E-invoicing has been a big ticket reform measure of the GST Council. The Budget reinforces the fact that e-invoicing would be implemented from January 2020. Although, as a new system, implementing e-invoicing mechanism may invite teething issues for taxpayers, in the long term, however, it would reduce the compliance burden for taxpayers, along with helping the authorities in keeping a robust check on tax evasion and other fraudulent practices.
While the fine print is yet to be completely understood, it seems that e-way bills, the bane of the existence of suppliers, distributors and transporters of goods, are going to be phased out once the e-invoicing is introduced. In tandem with the GST Council announcements, for augmenting digitalisation in GST, the proposals also discuss reforms such as simplification of tax returns and bringing out a fully automated GST refund mechanism.
Stringent penalties for customs defaults
On the customs front, to maintain a check on fraudulent availment of duty concessions and export incentives, it has been proposed that stringent penalties and prosecution provisions would be applicable to taxpayers. To strengthen the defence sector, basic customs duty exemptions have been proposed, subject to satisfaction of certain pre-import conditions.
Introduction of Amnesty Scheme
Last but not the least; an important proposal has been the announcement of the amnesty scheme - Sabka Vishwas Legacy Dispute Resolution Scheme. This amnesty scheme has been announced for legacy demands on excise duty, service tax matters and indirect tax cess. This may be welcomed by taxpayers, as it will incentivise closure of prolonged litigations of the previous tax regime, by reducing duty/tax liabilities up to 70 per cent, along with a full waiver of interest and penalties.
This scheme should usher in a positive mindset for taxpayers for closing legacy disputes and clearing old litigations. Important to note that several state-level amnesty schemes introduced in the past have not been very successful; as often, taxpayers do not want to abandon tax positions taken in the past. However, this scheme does seem attractive given that it seeks to reduce the tax liability cost as well, as against just interest and penal cost reductions offered in many earlier schemes.
In conclusion
The initiatives in Union Budget 2019-20 largely aspire to keep up the momentum on the reforms that have been undertaken in the past. By setting up mega manufacturing units and boosting domestic manufacturing in India, the emphasis has been laid on job creation and uplifting the economy.
(This article is co-authored by Anshul Aggarwal, partner, Deloitte Haskins and Sells LLP; Shreya Tripathi, senior manager; Amit Goyal and Swati Thapa, deputy managers at the firm)