Sukumar Mukhopadyay : Budget 2013-14 Revenue generation Budget but oblivious on reforms
Budget 2013-14 :Revenue generation Budget but oblivious on reforms
In the context of a high fiscal deficit and even more distressing current account deficit, it was expected of the Finance Minister that he would generate more revenue through the indirect tax budget. He has precisely done that by increasing the rates of duty in respect of items which are mostly consumed by the richer class. He could have as well done that to a large extent through the other route of removing exemptions but he has not chosen to do so. It could better have been a combination of removing exemptions and increasing the tax rate mildly for goods of conspicuous consumption. This should have been much better as it would have achieved the same goal in a more effective manner. In this treatise I shall try to establish that point.
Customs duty rates
Coming to the increasing the rates of duty, the following need mention. Customs Duty on SUV has increased from 75% to 100%, on motor cycle with engine capacity of 800 cc from 65% to 75% and on yachts from 10 % to 25%. The basic customs duty on Set Top Boxes for TV has been increased from 5% to 10%. Basic customs duty on raw silk (not thrown), of all grades is being creased from 5% to 15%. At the same time the basic customs duty on textile machinery has been reduced from 7.5% to 5% which is a welcome measure to help the textile machinery industry.
Excise duty rates
Excise duties on mobile phones priced at more than Rs 2000 has been increased from 1% to 6%. Excise duty on SUV has increased from 27% to 30% but it will not apply to those used as taxis. This exemption for SUV-taxis is completely unjustified since such luxury taxes are hired only by the richer class and not by the middle class. More over this exemption is administered by the refund route which is complicated administratively. At the stage of clearance from the factory, it is not known whether it will be registered as taxi. Only after registration at a later stage which is done by the car agents, it is known that it will be used as taxi. At that stage the refund is claimed. That makes the system more complicated. Excise duty on marble has been increased from Rs 30 to Rs 60 per square feet since the rate was fixed 16 years ago. In 16 years, the price has been much more than double. The rate should have been made advalorem so that the increase in price would have fetched more duty to the government automatically. Duty on cigarette has increased by 18% except those of and below 65 mm in length (which are of cheaper quality). So the idea is not to make it a “sin tax’ but to make it a tax for revenue only. Sin tax is referred to the higher than ordinary level of tax on cigarette and alcohol on the ground that smoking and drinking are sin. But here the tax has been made higher just because the Finance Minister wants higher revenue which is made clear in his Budget speech.
Several administrative actions have been taken in this Budget which are important and need separate discussion.
The most important is about GST. He has given a clear indication about the road map towards the introduction of GST which is welcome. Even the reserving Rs 9000 crore for the first instalment of the compensation for the loss of CST for the States is a clear progress towards the avowed goal. But the indication is only that the Empowered Committee will do the rest. In the Budget speech at paragraph 186 he has stated the following, “ ..my recent meetings with the Empowered Committee….has made me believe that the State Governments…are agreed that there is a need for a Constitutional amendment;….”. This is not in order. It is not factually correct that the agreement has taken place now. The fact is that there has been an agreement long back and in fact the One Hundred and Fifteenth Constitutional Amendment Bill , 2011 was placed in the Parliament which was followed up with subsequent Parliamentary procedures. It is surprising that such a statement which is not correct has found its place in the Budget speech.
ii. Section 49 of the Customs Act
Another procedural change proposed is to tighten the operation of Section 49 of the Customs Act which allows importers to keep imported goods in the godowns without actually bonding them when the goods are not cleared due to controversies relating to classification and valuation or adjudication. Often adjudication takes a long time due to various reasons such as need to get the goods tested in laboratories which are sometimes situated in other places, or asking for literature by the customs officers which the importer may not be able to provide immediately or some other reasons which are not directly caused by the importer himself. Section 49 provides an age old facility for the importers who are otherwise hassled due to many hurdles not always their own creation. Now to propose that month-to-month extension will be given to such permissions will make the life of importers more miserable. It is a retrograde step and should be withdrawn.
iii. Non-bailable offence
An important administrative step has been taken for the introduction of non-bailable provisions in respect of certain offences in Customs. Clause 65 of the Finance 3
Bill brings the following amendment, “65. In Section 104 of the Customs Act, for sub-section (6), the following sub-sectors shall be substituted, namely:-
“(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, an offence punishable under section 135 relating to –
(a) Evasion or attempted evasion of duty exceeding fifty lakh rupees; or
(b) Prohibited goods notified under section 11 which are also notified under sub-clause (C) of clause (i) of sub-section (1) of section 135; or
(c) Import or export of any goods which have not been declared in accordance with the provisions of this Act and the market price of which exceeds one crore rupees; or
(d) Fraudulently availing of or attempt to avail of drawback or any exemption from duty provided under this Act, if the amount of drawback or exemption from duty exceeds fifty lakh rupees,
shall be non-bailable.
(7) Save as otherwise provided in sub-section (6), all other offences under this Act shall be bailable.” This amendment has been necessitated by a Supreme Court judgment. This is a welcome measure.
Another measure has been taken to allow Tribunal to grant stay of 185 days where the delay is not due to the tax payer. Also the power of a single Member of Tribunal has been increased from Rs 10 lakh to Rs 50 lakh. Both these measures regarding Tribunal are friendly to tax payers but the limit should be increased to Rs 1 crore since there is always a shortage of Members in the Tribunal. Stay petitions should also have been allowed to be disposed of in revenue cases by single Member. Over all the changes made in respect of Tribunal are welcome.
v. Advance Ruling
Advance Ruling facility has been liberalized and extended to cover resident public limited companies. This has been a long standing demand. There was a controversy regarding interpretation as to whether a new item imported as a part of a set of imports in a consolidated project will be taken as a new import (which would entitle the importer to ask for advance ruling) or an old import (which would not allow him to ask for the facility of an advance ruling). Amendment has been made of the section 28E of the Customs Act to allow for the more liberal interpretation. The clause 58 which has introduced the change is reproduced below:
“58. In section 28E of the Customs Act, for clause (a), the following clause shall be substituted, namely:-
(a) “activity” means import or export and includes any new business of import or export proposed to be undertaken by the existing importer or exporter, as the case may be;”.
This liberal interpretation and the extension of the facility of advance ruling to resident public limited companies has been very good administrative measure which is a positive aspect of this Budget. This has been a welcome move. 4
vi. Amnesty Scheme for non-filers and stop filers (for service tax)
The Budget observes that there are 17,00,000 registered assessees under service tax but only 7,00,000 file returns. Many have simply stopped filing returns. Arguing that we cannot go after each of them, The Finance Minister has introduced an amnesty scheme. To encourage voluntary compliance and broaden the tax base of service tax the budget has proposed to provide one time amnesty by way of waiver of interest and penalty and immunity from prosecution to the stop filers, non-filers or non-registrants or service providers (who have not disclosed true liability in the returns filed by them during the period from October 2007 to December 2012) who pay the “tax dues”. The scheme is known as Service Tax Voluntary Compliance Encouragement Scheme, 2013. A defaulter may avail of the scheme on condition that he files a truthful declaration of service tax dues since 1.10.2007 and makes the payment in one or two instalments before prescribed dates. In such a case, interest, penalty and other consequences will be waived. The Finance Minister hopes to entice a large number of assessees to return to the tax fold. He also hopes to collect a reasonable sum of money. He has called it a one-time measure but it never remains one time. It is a retrograde measure to give amnesty as it was in the case of income tax some years back. It encourages continuous evasion. There are more stop filers in the case of income tax. Next there will be a demand to introduce the same in the case of income tax also. This has not been a welcome move.
While two more items have been added to the Negative List, the whole big list of exemptions known in popular parlance as the Mega Exemption List has remained untouched. It deserved to have been mercilessly pruned which would have given good revenue to the government. I am giving a few example of what exemptions could be withdrawn.
i. Item six, namely services provided by an Arbitral Tribunal, etc. should have been abolished.
ii. Item 8, namely, service by way of training and coaching in recreational activity relating to arts, culture and sports is very imprecisely worded. It should have been abolished since it will be covered by threshold of ten lakh. If the earning is more than ten lakh, it should be taxed.
iii. Item 16, namely, service by performing folk artists, etc. should have been abolished as this should be covered by the threshold.
iv. Item 17, namely, service by journalists, PTI, UNI, should have been deleted.
v. Item 18 namely, hotel accommodation should have been deleted.
vi. Item 22, namely, service by way of giving on hire to a State Transport Undertaking, motor vehicle meant to carry more than 12 passengers .. should have been deleted.
There are many more which could be worked out by the Budget Section. There should have been at least a move at the right direction but not even that has been done.
The exemption on service tax on copy right on cinematography which has been limited should have been withdrawn. 5
Even in customs and excise, there is scope of withdrawing exemptions which has not been done at all. There is no progress on advaloremisation of duties which started in 1990s. Even now duties on cement, marble, textiles are not advalorem. The benefit of inflation comes when the duties are on value. If the department is still thinks that advalorem duty on these items will be difficult to administered, what will they do when GST comes? It is high time they change the mind set. Some anomalies like difference in duty between hand-made and machine-made still continue which should have been set right.
All-women Bank - A gimmick and a waste of expenditure.
There has been hardly any move to reduce expenditure. Rupees one thousand crores has been allocated to spend on making a all-women bank. This is nothing but a gimmick. No case has been made out that one more bank is necessary. There are far too many banks already and new licenses are being given to corporate to start banks. There is no logic in having a bank where all the employees are women. This expenditure could have been saved. This unwelcome move shows that the government is willing to throw away hard earned revenue on projects which have no value.
GAAR – General Anti Avoidance Rule
The Budget says that an expert committee was constituted to consult stake holders and finalize GAAR guidelines. After careful consideration of the report, Government announced certain decisions on 14.1.2013 which were widely welcomed. The Finance Minister has proposed to incorporate those decisions in the Income-tax Act. The modified provisions preserve the basic trust and purpose of GAAR. Impermissible tax avoidance arrangements will be subjected to tax after a determination is made through a well laid out procedure involving an assessing officer and an Approving Panel headed by a Judge. He has also proposed to bring the modified provisions into effect from 1.4.2016. He has given no reason to delay it by three years more. In fact, the new provisions are so good and has been welcome to the stake holders, it is all the more reasons why it should have been implemented immediately. Obviously it has been done to facilitate more foreign direct investment but at the same time it is a retrograde step since it shows the mind of the government not to take action against aggressive avoidance activities by income tax payers.
Conclusion: The budget has followed only the higher tax route to raise more revenue. The better route would have been to cut undue expenditure, stop gimmick, reduce exemptions and introduce GAAR sooner than later. Super tax on the super rich would not have been necessary. That has depressed the market and it is unlikely to increase investment.