: Consumers received a major respite with Finance Minister Arun Jaitley deciding against imposing any additional indirect tax burden on them, ahead of the implementation of the Goods & Services Tax (GST) on July 1, 2017, other than increasing the tax rate of ‘sin goods’ to discourage people from smoking and consuming tobacco products.
“Implementation of GST is likely to bring more taxes both to Central and State Governments because of the widening of the tax net. I have preferred not to make many changes in the current regime of excise and service tax because the same are to be replaced by GST soon,” the Finance Minister said in his budget speech in the Parliament on Wednesday.
Indirect taxes as expected
Analysts said they were not expecting any increase in indirect taxes as the roll out of GST is due in four months.
Dr. Waman Parkhi, Partner, Indirect Tax, KPMG India, said, “It was expected that status quo on the indirect tax side would be maintained. Accordingly, no change is proposed in overall tax rates of customs duty, excise duty or service tax.”
However, to push towards the digital economy post-demonetisation, customs duty and excise duty rates of equipment used in making digital payments, and parts and components for their manufacture, have been exempted.
‘Lowest in six years’
The Finance Minister has increased excise duty on cigarettes, pan masala, beedis and cashew nuts, prices of which would go up. But retailers have already increased their prices in the range of 5%-7%, according to consumers.
Abneesh Roy, Senior Vice President, Edelweiss Securities, said the duty on cigarettes was increased by 6% as against the expectation of 8-10%. “This is the lowest hike in the past six years,” he said.
Prices that would go up up include cigars, cheroots, cigarillos, filter and non-filter cigarettes, and filter khaini, zarda and ghutka.
Similarly, prices of mobile phones would go up as duties have been increased on populated printed circuit boards (PCBs) for the manufacture of handsets.
The prices of silver coin and medallion having silver content not below 99.9%, and semi-manufactured silver and silver articles, will go up as the rate of duty has been increased from nil CVD (Countervailing Duty, the additional import duty charged on imported goods) to CVD 12.5% as an anti-avoidance measure.
Finished leather products, solar powered cells and LNG will be among the products that will be cheaper. At the same time, railway tickets booked online from the IRCTC website will be cheaper as a service fee will no longer be charged.
The service tax rate has remained unchanged. LED lights will be made cheaper as duty on parts of LED lights or fixtures have been reduced. Similarly, duty on solar tempered glass for solar powered equipment has been reduced.
“Though there has been some talk on an increase in the rate of service tax so as to align it with the rate of services on GST, it might not have been fruitful considering the fact that it is only for four months till July and getting Parliamentary approval to the increased rate itself may take two months or more,” Mr. Parkhi said.
"The very fact that the Finance Minister did not tinker with excise duty, customs and service tax rates in general, shows that he is focused on its implementation by 1 July,” he added.
Broadening tax base
The budget estimates project a revenue growth of 8.8% in indirect tax revenue as opposed to 15.3% growth in direct tax revenue, without any major increase in the tax rates, which means the focus is on increased compliance by broadening the tax base rather than raise the tax rates.
Rajeev Dimri, Leader, Indirect Tax, BMR & Associates LLP said, “Overall, the enhancement of tax rates on tobacco and tobacco products is likely to spur the revenue collection from indirect taxes. This should at least partially compensate the potential loss in indirect tax revenues on account of some reformatory changes announced in the budget.”
