As the countdown ended and the curtains were drawn on the budget announcement, there was an unmistakable feeling of the lost opportunity to leverage the medium of indirect taxes to send clear pointers of the government’s resolve to pep up consumer sentiments, which have hit the nadir. The Railway Budget presented on February 26 had also raised the expectations that economic sense had finally prevailed.
The protagonists may still maintain that peripheral changes are the most ideal under the circumstances and in keeping with one of the avowed objectives of a stable tax regime. Even though stability has been an accepted canon of taxation since Adam Smith, it does not deter reforms in tax administration and this was the most opportune time to put such reforms in place.
While the compulsions of balancing the alarming fiscal deficit — with UPA’s political agenda on the heels of next year’s elections — are conspicuous, at least a clear road map for GST, instead of just a fervent appeal to the State Finance Ministers, would have sent a clear signal that economic considerations cannot get whittled down by other considerations.
On the positive side is the retention of the generic rates of duty/tax — be it Customs or Excise or Service Tax. In keeping with the theme of the budget to revive the manufacturing sector and achieve higher growth rate, customs duty rates have been reduced for identified sectors such as import of plant and machinery for use in the leather industry or the Aircraft MRO sector. The customs duty has been hiked for import of luxury cars and motor cycles, considered as ostentatious spending. Similarly, excise duty rates on SUVs and cigarettes have been increased. On the service tax front, the budget proposes an increase in the rate for high-end luxury apartments/units, ostensibly in keeping with the aim of taxing the “super rich”.
(Shankar Bala is a senior tax professional, Ernst & Young)