NDA to put GST on fast track: Arun Jaitley

Dated 25th July, 2014

Raising hopes of an early implementation of the goods and services tax (GST), finance minister Arun Jaitley assured Parliament on Friday that the government will seek to move the amendments to the Constitution Amendment Bill this year itself to pave the way for implementing the landmark tax reform.

Replying to the debate on the Finance Bill 2014, Jaitley also introduced amendments to address some of the reservations expressed when he presented the budget on 10 July. The Lok Sabha passed the amended Finance Bill on Friday, putting in place changes to the tax laws proposed the budget.

Reiterating the commitment of the Bharatiya Janata Party-led National Democratic Alliance (NDA) to a low tax regime, the finance minister introduced amendments to the Bill that included exemption to units of debt mutual funds sold between 1 April and 10 July in the current fiscal from a higher capital gains tax.

The clause of treating debt fund units held for less than 36 months as short-term had been introduced to plug the arbitrage enjoyed by companies investing in such mutual fund units but was criticised by industry bodies for its retrospective nature.

Similarly, the minister decided to continue with the accelerated depreciation benefits for wind energy, as promised last week during debate in Parliament.

On the indirect tax side, the finance minister provided some relaxation in mandatory pre-deposit clause for filing of appeals against indirect tax demands in front of a tribunal or commissioner (appeals).

The government has clarified that in excise and customs duty cases where both the duty and the consequent penalty are in dispute, the mandatory pre-deposit has to be calculated only on the tax demand. In cases where the penalty is disputed, this mandatory pre-deposit will be calculated only on the penalty amount.

The budget had made it mandatory for taxpayers to deposit 7.5% of the duty demanded, or penalty imposed, or both, before filing an appeal before the Customs, Excise and Service Tax Appellate Tribunal at the first stage. For filing a second-stage appeal, taxpayers would have to deposit 10% of the duty demanded, or penalty imposed, or both.

The amendments also introduced a new clause that says interest in the range of 5-36% will be paid for deposits that have to be refunded to the taxpayer if the tax department loses the cases in the appellate tribunal.

“It is a fair measure,” said Krupa Venkatesh, senior director at consulting firm Deloitte India. “The new provision of paying interest on the mandatory pre-deposit amount collected is also taxpayer-friendly,” she said.

On GST, the finance minister said the government was striving for a consensus with states and will explore for resources to pay the central sales tax compensation to state governments.

“I have had two meetings with states (representatives) and we will try that as soon as possible—within this year itself—at least the law that is needed is legislated,” he said.

GST aims to dismantle fiscal barriers between states and is expected to lower the cost of doing business, which will eventually translate into lower prices for customers. Its implementation has been delayed from 1 April 2010, because of differences between the central and state governments.

There are around three main issues on which the states and the centre have not been able to come to an agreement. States are insisting that petroleum be kept out of the purview of GST and that the centre include a formal compensation mechanism in the constitutional amendment itself for offsetting losses arising from the implementation of this indirect tax reform. States are also opposed to subsuming of entry tax within GST, especially that entry tax that is in lieu of octroi. They are also upset with the centre for non-payment of central sales tax (CST) compensation from the year 2011-12 and want a formal compensation mechanism post GST’s implementation to be a part of the Bill.

Deloitte’s Venkatesh added that the finance minister may be able to push some form of GST quickly, given the favourable political environment. “The finance minister has indicated that he will be willing to bring in a good GST, if not the best GST, and has indicated that the government may agree to some of the demands of the states, like exclusion of entry tax from GST,” she said.

Jaitley also expanded the scope of the settlement commission for tax disputes and increased the number of advance ruling benches to deal with issues of both international and resident companies.

Mukesh Butani, chairman of BMR Advisors, said: “Separate benches of AAR (Authority for Advance Rulings) will work across India and the authority will not be based only out of Delhi. The vice chairmen will preside over such benches. This will enable rulings to be issued on a speedier basis,” he said.

“If it’s implemented in its true spirit, expansion of the scope of settlement commission will go a long way in reducing the huge amount of money locked in litigation,” said Sunil Jain, partner at law firm J. Sagar Associates. “Also, when it comes to advance ruling, a large number of rulings are not coming in.”

At the same time, Jaitley amended the income tax act to give powers to the central board of direct taxes (CBDT) to waive penalty amounts in case of late filing of returns. He pointed out that the clause of levying the penalty per day and without a waiver clause was making the penalty amount onerous.

The amendment also empowers CBDT to arrive at a new way to calculate arm’s length pricing for transfer pricing.

Transfer pricing refers to the practice of arm’s length pricing for transactions between group companies to ensure that a fair price—one that would have been charged to an unrelated party—is levied.

According to Jaitley, these changes will simplify and smoothen the tax structure and help in raising tax revenue. He also added that the government was preparing to take a final decision on the general anti-avoidance rules.

The rules were proposed by the United Progressive Alliance government, ousted in the April-May general elections, to empower the tax department to invalidate transactions that have been undertaken to deliberately avoid paying tax.

Jaitley also reiterated that the government will bring back black money stashed abroad back into the country soon.