Indirect tax changes that can unshackle the economy from impact of COVID-19

The first two Budgets of the Modi government were focused on bringing various reforms with the ambition of making India a $5 trillion economy. However, Budget 2021 is different. It will be presented under the unprecedented testing times of COVID-19 pandemic and its impact on the country’s economy.

While the industry will expect some measures for reviving the economy, the government may try to balance the Budget exercise by levying a special cess to meet the expectation of 135 crore Indians to be vaccinated free of cost. There may be some populist measures considering the number of elections lined up in the states of West Bengal, Tamil Nadu, Assam, Puducherry and Kerala in 2021. After introduction of GST, Union Budgets now focuses predominantly on Customs and Income Tax. Industry expects a gamut of relief in the upcoming Budget to help companies get back on the revival path, along with the hope that Finance Minister Nirmala Sitharaman will give free COVID vaccines and not any special COVID cess.

Every organisation needs a boost in cash flows to survive the present rough patch. To start with, the government can take simple measures which can release some pressure on company’s liquidity. One such measure could be that AEO certified entities, which already should be given higher level of expedited clearances and period for deferment of duty payment, should be increased from the present period of 15 days to 30 days, by amending Deferred Payment of Import Duty Rules 2016, to make the scheme more attractive. Also, similar deferment should be given for the MSME sector. Currently, even after revamp of SVB process in 2016-17, in many instances Extra Duty Deposit (EDD) is collected.

Another relief expected by the industry is on the collection of EDD on provisional assessments, pending SVB investigation. Industry expects that this provision should be scrapped from the present form of SVB process.

During the COVID-19 pandemic, India learnt the importance of being self-reliant and in line with this, Prime Minister Narendra Modi launched the ‘AtmaNirbhar Bharat Abhiyan’ in 2020. This initiative supplements the ‘Make in India’ vision of the government. Phased manufacturing plan (PMP) is one of the best ways to implement it since this gives time to the industry to set up the manufacturing facilities. Amongst others, the government has used PMP for mobile phone manufacturing in last few years which has yielded good results. In many other sectors such as white goods, laptops and tablets, there exists capabilities for manufacturing in India, so domestic industry expects reduction in duty on raw material and capital goods, with a corresponding increase in duty on finished products.

It has been said earlier that too much efforts and money is spent on tax litigations. Government has already brought legacy dispute resolution scheme for settlement of pending cases under Central Excise, Service Tax and Income Tax laws. Taking cue from the same, it is now time to introduce a similar scheme for Customs litigation matters including availment of exemption notifications, non-fulfillment of obligations under the EPCG, Advance Authorisation schemes, etc. This would help reduce litigation cost for both companies and ensure dispute free revenue to the exchequer. To make the scheme attractive and efficient, relief is expected by way of reduced tax, with no interest, penalty and prosecution.

On similar lines, the government has now formally set up the Customs Advance Ruling Authority to provide certainty on various issues concerning Customs law. This would help potential investors/foreign companies get early resolution of their queries.

With an objective to reduce non-tariff costs and increase India’s ease of doing business ranking globally, the government ratified the WTO Agreement on Trade Facilitation (TFA) in April 2016. In line with the said objective, industry expects that requirement of furnishing bank guarantee to claim preferential tariff benefit, which is being followed as a prevalent practice at various ports after introduction of Customs Administration of Rules of Origin under Trade Agreements 2020 (CAROTAR 2020), should be put to rest. For this, industry expects appropriate amendment to be made in the Customs Act to make it explicitly clear that provisional duty bond is sought in place of bank guarantee, only in cases where a verification request is initiated. Also, to promote exports of goods, it is expected that benefit under RoDTEP is disbursed in pre-defined time frame so that working capital issues are also kept in check.

While a lot has been done by the government, there is still a long journey ahead to unshackle the economy from impact of COVID-19 and continue on the path of ‘self-reliant India’.

(The writer is National Leader & Indirect Tax Partner, Deloitte Touche Tohmatsu India LLP)

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