Major Changes Proposed In The New Model GST Law      Addressing the Key Areas of GST      

Direct tax:

From a tax perspective the entire thrust seems to reduce litigation and dispute resolution.  The voluntary disclosure or amnesty scheme by paying 45% in taxes and penalties would help tax payers come clean and reduce litigation. Similarly, a small window is provided for cases covered under retrospective indirect transfer amendment, for companies to pay off taxes in lieu of waiver of interest and penalties.

On the litigation front, stay on demand by paying 15% of the demand at the first appellate level will reduce disputes and provide relief to the tax payers. Generally the norm was 30%-50%. This is based on Easwar Committee recommendations.

Government to pay interest @9% p.a. instead of 6% p.a. in case of delay by tax department in giving effect to an appellate order which shows confidence of Government in improving tax administration in India.  Also, reduction in corporate tax rate to 25% for new manufacturing companies would give boost to manufacturing.

Indian Patent box which shall now only levy 10% tax rate on income from specified patent exploitation is a landmark move to encourage IP development and registration in India. Dividend Tax made a come back with 10% for individuals/HUF if dividend is in excess of 1 Million per annum, which would hurt the investors but could be a surprise revenue generator for the Government.

The Budget provided a mix bag of changes for international taxation by introducing country by country reporting which will bring transparency among tax jurisdictions but thankfully the OECD BEPS limit has been retained thus limiting the impact of changes to a very small number of Indian corporates. From a foreign tax payer’s perspective, not levying penal withholding tax at 20% for nonresident taxpayers without PAN, as against lower rates under law / tax treaty, on submission of alternate document will definitely provide ease and relief to foreign companies doing business with India. Similarly, the extension of sunset clause for SEZs to 2020 will also give a fillip to SEZ and exports.

 

Indirect Tax:

The Budget 2016 turned out to be a rather neutral Budget which probably neither made nor broke anything as far as indirect tax is concerned. With ‘Ease of Doing Business’ setting the tone for most of the indirect tax changes, this Budget prioritized the growth (Make in India) preferred industries like defence production, textiles, mineral fuels & mineral oils, chemicals & petrochemicals, paper, paperboard & newsprint, etc. by reducing the customs and excise duty rates on their inputs so as to reduce cost of production. True to the tone, this budget also proposed to ease indirect tax litigations, rationalize interest rates and systematic digitization of government compliance procedures.  Further, while there is no increase in the excise duty rate, positively, a total of 13 Cesses is proposed to be removed.

Separately, the Finance Minister also indicated commitment towards Tax litigation reforms by introducing an Indirect Tax Dispute Resolution Scheme, 2016 in respect of cases pending before Commissioner (Appeals), whereby the assessee, after paying the duty, interest and penalty equivalent to 25% of duty, can file a declaration to close the proceedings. This is a welcome move as it will free the time of Commissioner (Appeals).   Further, to address the backlog of cases it is proposed that there will be 11 new benches of CESTAT/ Tribunal.

 

However on a negative tone, it begs notice that in addition to the non creditable Swachh Bharat Cess, the service receivers will now have to bear an additional tax named Krishi Kalyan Cess (KKC), at 0.5%. KKC will cumulatively increase service tax from 14.5% to 15%. Further changes like increased ‘Clean Energy Cess’, Increased excise duty on Rs. 1000+ readymade garments by 2%, Service tax on Telecom spectrums , Infrastructure Cess on Automobiles will also add up to the woes of ‘Aam Aadmi’.

Although positive current indirect tax changes were certainly anticipated, with GST being under a political embargo, the expectations from this budget were never that high.

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