Dr. Sanjiv Agarwal
If Economic Survey for the year 2014-15 is to be believed, India has overturned its economic growth pattern to positive and its Gross Domestic Product (GDP) is expected to grow at 7.4 percent in current fiscal. Based on normal monsoon; economic, fiscal and industrial reforms and lower oil prices, it is expected that our economy will grow in the range of 8.1 – 8.5 percent in 2015-16.
The Union Budget for 2015-16 as announced in Parliament on 28th February 2016 claims to be aimed at accelerating growth, enhancing investment and improving quality of life. It also focuses on industrial growth, social security measures and long term reforms in the areas of infrastructure, banking and creating an environment of doing business in and India with ease.
It also aims at tax buoyancy, observance of fiscal discipline and double digit economic growth in mid-term. Jobs creation and nurturing young Indians with encouragement to entrepreneurs and start ups is also commendable.
GST and Service Tax
On a optimistic note, introduction of common Goods and Services Tax (GST) could be a game changer. The economic situation is therefore upbeat, on a rise and forward looking so far as growth and reforms are concerned.
So far as goods and services are concerned, there are many items on which excise duty has been increased from 6% to 12% including mobile handsets. On certain input and raw materials, duties have been rationalized or hiked.
On Service Tax front, Government has been too harsh and aggressive as it appears from the target of Service Tax collection itself. From a revised tax target of Rs. 168000 crore in current fiscal, it is aimed to collect Service Tax of Rs. 210000 crore in financial year 2015-16. To achieve this, the budget proposes to mercilessly increase the rate of Service Tax by 2 percent from 12% to 14% a hike of about 17 percent from earlier rate. As if this was not enough, a new cess in the name of Swachh Bharat Cess is proposed @ 2 percent and that too on value of service, not on tax. So, the effective Service Tax rate would be 16 percent which is 133 percent of earlier tax rate of 12%. This is just not expected from a Government that claims to be concerned about its people. This will surely lead to inflationary trend. Value of services will also go up as all reimbursements shall be part of value which will be subjected to tax.
To expand scope of Service Tax levy, negative list of services has been pruned and many exemptions curtailed. Service Tax shall now be payable on job works for manufacture of alcoholic beverages, support services provided by Government, taxi aggregators, mutual funds agents and lottery distributors, certain construction activities etc. However, some small exemptions have also been provided here and there such as for common effluent treatment plants, senior citizen insurance etc.
However, indirect tax proposals and levy of surcharge and new cess in the name of Swachh Bharat Cess would fuel inflation.
Goods & Services Tax (GST)
Excise / Customs