INDIA - Union Budget 2019 - Indirect tax law landscape and future path
As expected, and following the convention in past election years, the interim Union Finance Minister presented the ‘Vote on Account’ in the Parliament. This is essentially an interim budget of proposed expenditures to be incurred over the next few months until the new government assumes office in May 2019. Given that it is a general election year, the outgoing government abstained from tinkering with indirect taxes and it did not announce any new indirect tax incentives.
While the government has delivered on its promise to make essential supplies subject to a lower GST rate, the process has been rather slow. Furthermore, though integration of the GST rates of 12% and 18% into a single rate is urgently needed, the Indian government has not combined them so far. The list of goods subject to the 28% rate has been reduced progressively, but more items, such as tires, pumps, cameras and so on, merit a lower GST rate than the current 28%.
Input tax credit (ITC) restrictions on many items, such as immovables, insurance, food and beverages, and so on, continues to worry businesses. Indeed, denial of an ITC on such genuine business expenditures defies logic.
Many in industry continue to wish that petroleum products would be subject to the GST. As well, the power sector has not been able to benefit from GST, as electricity remains outside the GST net.
Noting conflicting positions and views emerging in different jurisdictions, the government has finally approved a plan to set-up a Central Appellate Authority for Advance Rulings related to GST. This new service will be in addition to the existing 2-tier Advance Ruling mechanism that exists at the State-level.
The government’s initiatives related to digitisation started with successful transition of Income Tax returns into paperless processing and the generation of refunds. The process is being extended to Customs and GST returns and refunds as well. But, a lack of preparedness and inadequate IT infrastructure has led to multiple deferments of compliance due dates.
With the clear vision of simplifying tax compliances and of preparing an automated digital environment for policy decisions, for welfare activities, and to use automated tax audit tools to help reduce revenue leakage, the government has adopted various initiatives to strengthen the reporting mechanisms and interlinkages of its data with that of other tax authorities and regulators.
Taxation law reform is a continuous process and it should not be linked to the government’s annual budget process. In the context of GST, where amendments require acceptance and legislative exercise by State governments too, the GST Council’s consultative process involving different levels of government (Union and State governments) is essential when it comes to making periodic changes, as mandated in the Constitution of India. It is expected that continuation of this process will result in a robust, world-class indirect taxation system for India in the near future.