The Economic Times
By Arun Kumar
The last full-fledged Budget of the current government was marked by an eye on the long term while addressing important concerns over the social safety net.
The commitment to a long-term build-out of the economy to enhance productivity and job creation was reflected in the Budget’s focus on infrastructure, both hard and soft.
Hard infrastructure, covering both urban and rural areas, received attention in terms of investments in smart cities, transportation (from roads to aviation) and digital connectivity. Soft infrastructure, from health to education, was the focus of a number of investments, ranging from higher education institutions to rural residential schools.
The Budget had a major focus on agriculture and rural areas.
Increasing rural incomes with initiatives to expand credit availability and higher prices realised by farmers can be transformative in impact. Boosting the growth rate in the agricultural sector can greatly contribute to moving India’s overall gross domestic product growth rate to the 8%-plus range.
The reduction in corporate tax rate for companies in the micro, small and medium enterprises sector is well targeted as these businesses are strong potential generators of employment.
India has seen numerous transformational changes in the last few years, driven by structural reforms and flagship programmes. Goods and services tax is expected to be a game-changer over the medium to long term.
While there are teething troubles, as is to be expected in a transformation of this magnitude, GST has already shown its ability to pull a large part of the informal economy into the formal system and expand the tax base.
Over the last two years, direct and indirect tax collection have steadily grown despite a slowdown in the overall gross domestic product growth rate. These indirect tax reforms will have a huge impact on the economy and revenue generation, particularly of the states.
The Budget, of course, had no major changes (other than customs) in indirect taxes as the power to make those amendments has moved from the central and state governments to the GST Council. It must be noted that issues such as restriction on input credit, simplification of return filing process, review of the place of supply rules, inclusion of petroleum and real estate and review of the GST rates are awaiting GST Council decisions which are expected in February.
The proposed customs duty changes are aimed at empowering domestic manufacturing industries to give a fillip to the ‘Make in India’ campaign as well as reduce litigation. Major sectors impacted by the customs duty rate hikes are consumer electronic goods and automobiles.
At the same time, the age-old education cess (3%) on customs duty has been abolished and will be replaced by a new Social Welfare Surcharge of 10% on the basic customs duties on import. This will lead to imports becoming costlier across sectors, approximately by 1%.
The government has also announced measures to improve customs trade facilitation, pre-notice consultation and time-bound adjudication of cases which should enhance the ease of tax compliance and reduce litigations.
It is too early, however, to conclude that there will be no changes in the GST law in this Budget.
The GST Council is scheduled to deliberate on various issues in its next meeting.
Therefore, it is possible that the government may introduce much-needed GST amendments in the Budget session in April, should the GST Council approve changes in its next meeting.
The author is the chairman of KPMG India.