The country’s Union Budget 2019-20 is expected to be presented in Parliament on 1 February. However, this year it is going to be a bit different. In view of the upcoming elections, we expect it to be a vote on account, and not a full fledged budget. Every year, CII presents a detailed Pre-budget Memorandum to the Ministry of Finance for consideration of its recommendations for the Union Budget. This year too, based on inputs from its members, CII has submitted its recommendations on the Union Budget to the Government. Even though it will be a vote on account, we hope the concerns of members are considered by the Government, which may like to cover them in this Budget, or the next, as and when taken up.
Pointing out that the Indian corporate sector’s tax burden is one of the highest in the world, CII has submitted that the corporate tax rate should be brought down to 25% unconditionally without any turnover criteria, and to 18% in a phased manner. This would facilitate the ease of doing business. To prevent revenue loss, such corporates may be given the option to pay 25% of the tax rate without availing any tax incentives (akin to the option currently available under section 115 B A).
CII has also advocated that the Minimum Alternate Tax (MAT) should be abolished in view of the removal of most incentives. Alternatively, the MAT rate should be brought down to 10% and the levy of MAT should be restricted to those incomes that are taxable under the regular provisions. Further, just like domestic dividend, foreign dividend and SEZs should be exempted from MAT, the leaving profits with these companies for further investment.
On Dividend Distribution Tax (DDT), CII has proposed to reintroduce the classical tax system, where income tax is levied separately, both on company income and on dividends received by shareholders. It is a simple and transparent method of taxing dividends that promotes greater equity by taxing the recipient of the income as per the applicable slab rate. It reduces the overall tax burden on the companies, and avoids the cascading impact of taxes. Further, it does away with the problem of no-credit for foreign investors, thereby making India a more attractive and competitive destination for investments.
An assessee to whom the Double Taxation Avoidance Agreement (DTAA) applies is required to furnish a Tax Residency Certificate (TRC), to claim the benefits of the DTAA. It is suggested that a threshold of say one crore per single payer per annum or any appropriate threshold be specified for the applicability of this provision, relating to obtaining a TRC.
CII recommends that the number of benches of the Authority for Advance Rulings (AAR) should be increased to ensure quick disposal of the applications. Also strict deadlines should be prescribed under the law for disposal. Section 147 empowers an Assessing Officer to reopen an assessment if he/she has ‘reason to believe’ that income has escaped assessment. In practice, the said notice usually does not spell out the reasons in proper detail. CII recommends the Act be amended so that the ‘reasons to believe’ are properly documented.
To simplify the litigation and administration process, the Government should streamline the tax appeal procedures and make each appellate level a timebound process. Recovery proceedings should be kept in abeyance till the disposal of such appeal.
On Indirect Taxes, the budget is limited to tweaking of customs duty only, as, except for alcohol for human consumption, and five petroleum products, namely petroleum crude, high speed diesel, motor spirit commonly known as petrol, natural gas, and air turbine fuel, all other products have been covered under the Goods and Services Tax (GST) subsuming 17 indirect taxes, which is under the purview of GST Council.
Further, with the implementation of GST, seamless input tax credit is admissible including for traders, with the result that imports of FMCG and other consumer products have become cheaper to that extent as compared to those produced by indigenous manufacturers.
To support ‘Make in India,’ during the year 2018-19, varying import duty has been increased on a number of products such as diamonds and gem stones (from 5% to 7.5%), compressors for air conditioners and refrigerators (from 7.5% to 10%), plastic bath and sanitary fittings, boxes and containers, table and kitchenware, leather suitcases, travel bags, and speakers (from 10% to 15%), textiles, air conditioners, refrigerators, and washing machines (from 10% to 20%), articles of jewelry (from 15% to 20%) and footwear (from 20% to 25%).
There are a number of industrial inputs, intermediaries and end products which attract nil, 2%, 2.5%, 5% and 7.5% rate of customs duty. This graded duty structure in any manufacturing sector is useful to add value at different stages of production by indigenous industry. In addition, a large number of goods attract either nil or concessional rate of customs duty under a number of free trade agreements (FTAs) signed by India with many countries, making it difficult, in many cases, for indigenous manufacturers to compete. Therefore, there is a need to review the FTAs, particularly where they are hindering the increase of domestic manufacturing capacities.
In addition, the impact of economic slowdown in many countries still continues. These countries are making all efforts to export to other countries, including India, at a lesser price. Any reduction in peak rate of customs duty will go against the ‘Make in India’ campaign of the Government.
In view of the above, CII recommends the continuation of the 10% peak rate of customs duty for the year 2019-20 to protect indigenous industry, which suffers from certain disadvantages like higher rate of interest and power, etc.
Further, the structure of customs duty becomes anomalous when the duty rate on inputs is higher than the duty rate on finished products. In the past few years, some of the anomalies were corrected. However, there are certain products like cement, cutting tools and petrochemicals where such anomalies remain. In addition, there are a large number of goods having inverted duty structure due to concessional or nil rates of customs duty under various trade agreements signed with different countries. This needs to be corrected and reviewed with stakeholders’ participation and consultations.
For exports promotion, CII has recommended that the MEIS incentives and Duty Drawback Rates be increased to minimum 5% and 3% respectively, and the conditions imposed for claiming IGST refunds on exports be removed. CII has also suggested setting up a settlement mechanism for legacy litigations under the erstwhile tax regime.
These are all very important issues being faced by industry. CII is hopeful that the Government will consider these concerns favorably, as has been done in the past.