Interim Budget 2019 - Will it vanquish taxpayers' anguish?
Propriety demands that not too many changes on the tax front are made in a vote on account or interim budget, protocol being that the Government only presents expenditure bills for the financial year. However, with General Elections just around the corner and Govt.’s endeavor to appease the common man, whether the Govt. will break tradition to offer direct tax relief in a poll year remains to be seen. With the interim budget also preceding the unveiling of the Direct Tax Code report on February 28, 2019, it is sure going to be a tightrope walk for interim Finance Minister Mr. Piyush Goyal who will take the hot seat to present the vote on account budget on behalf of Mr. Arun Jaitley on February 1, 2019.
What are your expectations from the interim budget? Are we in for some surprises?
Not many changes are expected on the Goods and Services Tax (GST) front since decisions are taken by the GST Council. Further, while GST Compensation Cess is technically under the ambit of Central Government, the government may refrain from making any changes there as well since as a protocol, matters relating to Cess have been deliberated within the GST Council in the past.
In any case, recent tax rate cuts and increase in threshold limit for obtaining GST registration mean that there would be more pressure on the exchequer. This, therefore, leaves the Government with little maneuvering room for GST related changes in the upcoming interim budget.
Accordingly, what could get reflected in this interim budget is more of policy related intent. For example, given the shortfall in GST collections, the government may like to outline the measures being taken (such as data analytics) to curb tax evasion.
On 4 January 2019, the Government of India through a formal notification issued by Ministry of Electronics & Information technology, advanced the Phased Manufacturing Programme (PMP) implementation for the year 2019-20 by two months.
Pursuant to this, the government has already notified some changes on 29 January 2019 as regards Customs duty rate on import of parts or components etc. used in manufacture of battery pack for mobile phones. These changes are aimed towards 'Make in India' initiative of the government by incentivizing local manufacturing of mobile phones and their parts & components.
One could expect similar Customs duty rate changes for other components such as touch panel, display assembly etc.
Tinkering of Customs duty rate for various life-saving drugs and medical devices could also be considered by the Government, with an aim towards making healthcare more affordable in the Country.
Other measure such as Excise duty cut on petroleum products may also be on cards, considering the impact it has on common masses, though the fiscal bandwidth with the Government is limited.
& Mr. Lalitendra Gulani (Senior Associate)
As dusk settles over first term, the Modi Government will be presenting its final budget on February 1, 2019. The expectations with respect to indirect tax proposals are guided by two factors: (i) Firstly, the changes in GST require prior consultation with GST Council; and (ii) Secondly, it is an interim budget.
The Finance Minister is expected to rationalise customs duty implications to correct certain anomalies and further push government’s ‘Make in India’ initiative. The pre-import condition in Advance Authorisation scheme issued in October 2017 had caused avoidable disputes. DRI is issuing notices to several exporters for violation of this condition. The government in its response has carried out curative amendments in Foreign Trade Policy, 2015-20 and Custom Notifications recently. The budget is expected to bring clarity as whether these amendments will be prospective or retrospective.
On GST front, the budget will be bereft of any legislative changes. However, the government may provide roadmap on policy decisions that may be taken in future. The union cabinet has recently approved the constitution of GST Tribunals. The budget is likely to refer to government’s plan in establishment of such Tribunals. Further, the anti-profiteering authority has been quite proactive recently and their rulings have earned fair share of criticism from several quarters. It is expected that the budget documents may clarify the government’s intent in respect of the same.
In terms of GST, the interim budget is likely to be shorter in scope as compared to conventional budget announcements. The GST Council is taking care of the changes necessary from the standpoint of fitment of rates and process simplification, thereby taking a major chunk off the FM’s budget speech. Some changes on Customs Duty exemptions are expected considering multiple constitutional challenges on customs provisions that have come up lately, before various High Courts across India. The sensitivity of this budget is compounded by the crucial general elections that is scheduled to follow the interim budget. While enhancement of tax rates are unlikely, the Finance Ministry has to maintain a fine balance to bridge the stiff fiscal deficit target. This hints at a possible reshuffle in the tax base. However, there may not be any big surprise this budget.
It is not unusual for a budget in an election year to be full of surprises. This would typically mean reduction in taxes and increase in public expenditure targeted specifically in areas which would boost the incumbent’s electoral prospect. However, the present government has had a record of taking counter intuitive decisions. On occasions when big things were expected, it turned out to be a dampener and big bang decisions were taken viz. demonetisation and economic quota when there was zero anticipation. This makes it trickier to predict this interim budget or if it would be an interim budget at all as there is news that it could be a full budget.
On the indirect tax front though, things look much predictable than income tax and other expenditure proposals. With the GST council now empowered to approve any amendments to GST, there is little or no chance of proposing any new change by the government on the GST front. At the most, amendments may be introduced to enact the changes already approved by the GST council. Clarificatory circulars on contentious issues under GST are also possible. Overall on the GST front, nothing big is expected as was the case during last year’s budget which was the first budget after introduction of GST.
Changes, however, can be expected on the Customs front. After a trend of years of reduction in Customs duty, last year’s budget saw a reversal of trend with a slew of customs duty increases in cell phones, LCD panels and auto parts. It would not be a surprise to see this protectionist trend continuing this year in line with the aggressive US trade policy and widening current account deficits. This can even please the domestic industry and ostensibly spur manufacturing in the country. There will be of course, some legislative tinkering with the Customs Act also especially with the objective of ease of doing business which this government seems determined to improve upon.
With a new Finance Minister in place, some freshness in approach can also be expected. As was remarked by the Law Minister Ravi Shankar Prasad during the economic quota in Parliament that the closing phase of this government is like slog overs in a cricket match when the maximum sixers are hit. He said that there are many sixers yet to come and what can be a better pitch than the budget to hit these sixers!
