Union Budget to Focus on Tax Stability and Simplification

27 Jan 2021

The prompt and decisive relief and reform measures announced by the Government during the past year to manage the impact of Covid-19 pandemic on the industry and overall economy are laudable. The recent improved figures in agricultural production, manufacturing and consumption have boosted industry confidence and there has been a discernible improvement in the economy.

The latest CEOs Poll conducted by CII indicates positive business sentiments. This has further been affirmed by an all-time high GST revenue collection crossing Rs 1.15 lakh crore for the month of December 2020. It is most likely that the economy will recover this year itself, and India will have to ensure that such recovery is on a sustainable path. The Union Budget 2021-22 is an ideal opportunity to take comprehensive and objective steps towards achieving this objective.

The two most important areas that call for immediate attention for the economy to get back on the growth track are private investments and job creation. To generate employment and promote investor confidence, a stable tax regime is strongly desired.

Keeping in view the fiscal constraints, CII suggestions on taxes for the upcoming Budget do not ask for any significant deductions/ exemptions and are focused mainly on clarity in law, simplification of procedures and reduction of litigation, facilitating business transitions which would in turn promote ease of doing business in the country.

Even before the pandemic hit, private corporate investment had fallen from 13.6% of GDP in 2012-13 to 11.9% in 2018-19. The pandemic has further impacted these investments. The government had taken the bold initiative of lowering the tax burden on companies to facilitate investments.  At a time when the private sector is gradually beginning to gain strength after the severe COVID shock, the government should maintain tax stability and avoid any additional taxes on income.  Even for individuals, in the interest of reviving demand, the tax rates should be maintained at the current levels.

The government has taken several positive steps towards a transparent and simple tax regime. In this context, tax certainty is significant as it facilitates compliance and minimises disputes. The Finance Act 2020 introduced some measures to deepen and widen the tax net like Tax Deducted at Source (TDS) on e-commerce transactions and Tax Collected at Source (TCS) on sale of goods.

However, some of the provisions remain ambiguous, leading to confusion amongst taxpayers.  For instance, the scope of TCS provisions has been extended to cover a seller of “goods”.  However, the term “goods” is not defined in that provision.

Whether “goods” include shares, securities, actionable claims, money/ foreign currency, etc. is not clear since it is defined differently under various laws. It should be clarified that these items will not be considered as goods. Further, to relieve compliance burden for industry, business-to-business transactions should be excluded from TCS on sale of goods.

The current customs duty may be revisited to strategize a graded roadmap to make duty slabs more competitive over a period of three years. A review of final and intermediate products needs to be undertaken to ensure that inputs which are not being manufactured in India can be imported at lower duty to increase export competitiveness of final products manufactured in India.

Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (the CAROTAR, 2020) were introduced to prevent misuse of the free trade agreements.  In reality, it is known that all imports are indiscriminately subjected to detail scrutiny, despite government’s FAQs that suggest otherwise.  To simplify procedures for taxpayers, an administrative framework should be constituted to check such instances that cause unwarranted trade disruption.

CII looks forward to an ambitious and balanced Budget in these unprecedented times to overcome the prevailing economic uncertainty.

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