The Union Budget for FY2021-22 is slated to be one of the most important and anticipated budgets, given the economic devastation that has been caused, in India, as well as internationally, by the COVID-19 pandemic and the resultant lockdowns and market disruptions.
The Government will try to set a new direction to the economy with emphasis on creating opportunities for domestic business and industry, and an effort to move towards a more self-reliant economy. Some of the key demands of the industry, advanced over the years, if met, could hold the key of signalling the Government’s intention of progressive revival.
Health care is a sector which has become vital in the present time. The unavailability of input tax credits, primarily due to healthcare services being exempted under the GST regime, is a cause of major heartburn, as GST paid on procurements in the supply chain constantly elevates the cost of healthcare services.
The Government should consider making healthcare services either zero-rated or levy a concessional rate of 5% GST with input tax credit to bring down the costs. Reduction in GST rates for clinical trials (from 18%) performed in India for foreign companies is also desirable, considering the developments in the pharmaceutical industry in recent times.
Sectors such as textiles, railways, mobile phones, fertilisers and footwear which bear the brunt of the non-eligibility of refund of Goods and Service tax (GST) in cases of inverted duty structure will look upto the government to ease their burden. These sectors have voiced their concerns many times and in these perilous days would be a big boost to the affected sectors as it would allow access to trapped funds and also lead to a greater ‘ease of doing business’ in India.
The inclusion of petroleum products under the ambit of GST is a demand that has been simmering since the introduction of the ‘óne nation- one tax’. The retail prices of petroleum today consists of more than 70 percent taxes. Since, the Government is keen on taking initiatives like clean energy, products such as LNG can be considered to be initially bought under the GST regime to set up a platform for full induction at a later stage.
Another area which the government should look at is the supplies between distinct persons without consideration for sectors which are outside the GST ambit. Such sectors include, oil and gas, alcohol and healthcare. Since these sectors do not have an output GST liability, the GST charged by one distinct person (such as a Head Office) to another distinct person (such as the Branch Office) for common services, becomes a cost in the value chain, thereby, raising the overall cost for the goods and services supplied by such sectors. The government should exempt such sectors from the levy of GST on inter-se supplies of goods and services.
In terms of procedural issues, the Government should rationalize the GSTN portal to allow amendments at the time when input tax credit is taken, take a re-look at some harsh notifications issued, particularly the amendment to Rule 21A of the CGST Rules, denying opportunity of hearing in case of perceived misdoing and cancellation of registration, and further, consider allowing the industry some leeway in introducing the e-invoicing and QR code implementation on invoicing, as they are presently limping out of an era of lockdown which has caused severe damage to available resources.
On the Customs front, facilitation measures should be considered to be introduced in all major Customs ports (in synchronicity with the Risk Management System and operational tweaks in the Faceless Customs Measures) for expedited clearance of all Exim goods, and particularly related to E-Commerce. This will give a much needed fillip to the industry as considerable ‘dwell time’ will be reduced. Other measures that are the need of the hour is the overhauling of the Special Valuation Branch (SVB) scheme to reduce the constant burden of backlog. Removal of extra duty deposit pending finalization of SVB valuation will go a long way to improve cash flows for importers.
As always, the wish list for the first pandemic Budget is huge and cannot be covered in reams of paper. The overall objective of the Government should be the recovery of the economy and reassurance to the industry, and also an indication of faith, to show that they are in-step with the demands of the market and committed to the overall principle of ease-of-doing business.
This article was originally published in ET now news on 27 January 2021 Co-written by: Rajat Bose, Partner; Neeladri Chakrabarti, Consultant, Click here for original article.
Contributed by: Rajat Bose, Partner; Neeladri Chakrabarti, Consultant
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