sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Latest Expert Exchange
News Headlines »
 3rd instalment of advance tax due on 15 December
 Tax on your gold and real estate investments
 Securities and Exchange Board of India (Mutual Funds) (Third Amendment) Regulations, 2018
 Have you filed your income tax? Remember these deadline nears; know from TDS, TCS to challan, forms
 Notification No. 96/2018 -Central Board Of Indirect Taxes And Customs
 Here’s how you can check your ITR refund status online
 Your tax form will be filled by the taxman Income tax return (ITR) filing
  Section 24 and Section 56 of the Banking Regulation Act, 1949 - Maintenance of Statutory Liquidity Ratio (SLR)
  Companies (cost records and audit) Amendment Rules, 2018
 Income tax, TDS rules explained in 10 points EPF withdrawal
 CBIC extends due date for filing of FORM GSTR-7 for the months of Oct to Dec till Jan 31st 2019

Budget likely to target end-use-based and product-specific tax exemptions
January, 25th 2007

Recently, the Prime Minister had stated that tax related exemptions need to be removed. The question is how the coming Budget will tackle the sensitive issue. S Madhavan addresses the matter from an indirect tax standpoint

It has long been the stated intent of the government to increase the tax to GDP ratio. Historically, the tax GDP ratio in India, as regards federal taxes, has been below the double-digit mark and as recently as in 2005, the finance minister had articulated the need to significantly increase this ratio.

The only meaningful way this can be achieved is to increase the revenues from indirect taxes. The job cannot be done by merely addressing direct taxes. Historically again, indirect taxes have contributed majorly to Central government revenues and this fact is unlikely to change any time soon.

Now, if the quantum of federal indirect tax revenues is to significantly grow, in order for the objective of the increased tax to GDP ratio to be achieved, the only feasible way in which this can be done is to broadbase the coverage of indirect taxes, by eliminating exemptions, and to consequently also moderate the tax rates, in order to achieve the twin objectives of a growth in fiscal revenues as also in economic and business output and efficiencies.

Therefore, the economic rationale for removal of exemptions has long been accepted. Indeed, the worldwide experience is to broaden the tax base through large scale removal of exemptions and limiting exemptions to a small and moderate number, to be supported by cogent socio economic arguments.

Given this policy imperative, the coming Budget would clearly undertake significant initiatives on removals of exemptions. The reason why this is expected this year is that such hard decisions can typically be taken only some years away from the general elections, which are due in 2009, and hence 2007 is indeed the right time, from this standpoint.

On Customs, the present fairly long list of end use-based exemptions is expected to be significantly pruned. However, India has also progressively and consistently reduced duty rates and this ongoing exercise, which was manifest in the duty cuts effected on January 22, will result in the emergence of a moderate Customs duty regime, similar to the ASEAN model.

It is, of course, also true that not all exemptions will be discontinued and there will always continue to be a limited set of goods which will be eligible for an exemption from Customs duties. These products will typically relate to our international commitments, such as on IT products, or those which are required to provide medical care and possibly those goods which are not manufactured indigenously or are predominately imported for every day mass consumption.

On the excise front, the discussion on exemptions is focussed around product-related and area-related exemptions. The point relating to Customs duty exemptions is equally relevant for product related excise exemptions and there is a similar expectation that the list of product related exemptions will be significantly reduced in the Budget.

However, the more important point is that area-related exemptions, such as those applicable to J&K, HP, Uttaranchal and the North East States, will most likely remain untouched in this years Budget since it was only very recently that these exemptions, which were originally scheduled to be in force up to March 31 2007, were extended by another three years.

Indeed, a majority of the investments in various product categories of general consumption, such as FMCG, are precisely in these excise-free zones. So, it is likely that Budget tackle product-related exemptions in Customs and excise, while it will leave untouched the very significant area-based exemptions from excise.

If India has to keep its tryst with the goods and services tax by 2010, as has been mooted by the finance minister last year, it is imperative that exemptions of any kind are significantly eliminated so that all economic activity in the country, whether it be the supply of goods or the provision of services, is charged to a moderate indirect tax. It is expected that Budget 2007 will significantly advance this progression to the GST.

The author is leader-indirect tax practice, PwC

Home | About Us | Terms and Conditions | Contact Us
Copyright 2018 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Wholesale Silver Jewelry

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions