The industry is looking forward to broad policy reforms in indirect taxation, including clarity on implementation of GST, abolition of special additional duty, reform in indirect taxes on SEZs and clarity on taxation of software.
Introduction and implementation of GST would probably be one of the most significant indirect tax reforms ever in the country. While its actual implementation could take some years, the industry would like to have some insight into the government’s broad plans on its design and implementation.
All budget speeches for the past few years have consistently talked about the implementation of GST, which is set to transform the indirect tax regime of the country by April 1, 2010. However, not even a basic structure of GST has been given to the industry to analyse the possible impact on their businesses.
Abolition of special additional duty (SAD) in lieu of VAT, levied at the rate of 4% is another policy reform that the industry is looking forward to. SAD is levied on imported goods in lieu of central sales tax (CST) or VAT to create a level playing field for goods produced by the domestic industry vis-?-vis imported goods.
However, administration of SAD is proving to be extremely cumbersome. Traders are entitled to a refund of SAD after having paid the duty in the first place, which eventually leads to a huge mount of paperwork and not just a large administrative burden for the importer but also a blockage in cash flow. The withdrawal of this tax would come as a huge relief for the industry.
The service tax laws recognise cash system of accounting while the Companies Act provides for maintenance of accounts on accrual basis. This is also an administrative issue for the corporates, where the operating systems are not geared up to account on a cash as well as accrual basis and this necessitates manual reconciliation.
For the administrative convenience of the industry at large, the service tax regime should be aligned with the current accrual system of accounting and with the accounting principles and standards.
Service tax exemption on provision of services from the domestic tariff area (DTA) to developers/ units of special economic zones (SEZs) has been a subject matter of debate since its inception. The government has been authorised under the SEZ Act to prescribe the manner in which the exemption from payment of service tax on taxable services rendered to SEZs by any service provider shall be available.
A series of notifications have been issued by the government on this subject. Currently, services fully consumed within the SEZs have been provided an unconditional exemption, without following the refund route. The exemption by way of refund is available when taxable services provided to SEZ are consumed, partially or wholly outside the SEZ.
However, no parameters or guidance has been provided to determine what constitutes ‘services consumed within SEZ’. The industry expects the budget to clarify this issue or else, this would result in another spate of unresolved litigation. Exemption for all taxable services availed of / received by the SEZ units/ developer irrespective of the fact whether they are provided from/ consumed outside SEZ would bring great relief to the industry.