Delhi Budget 2016-VAT, Excise / Stamp Duty & Luxury Tax changes

Deputy Chief Minister of Delhi Manish Sisodiya presented the Annual Budget for 2016-17 in Assembly on 28.03.2016 and  rationalisesd VAT and Other Duties which may result in reduction in prices of readymade garments, shoes, watches and electric and hybrid vehicles. In this Article we have covered Highlights of Changes related to Taxes/ Duties and Extract of his Budget Speech related to Changes in Tax and Duty Structure.

HIGHLIGHTS OF GOVERNMENT OF NCT OF DELHI BUDGET- 2016-17 RELATED TO VALUE ADDED TAX, EXCISE DUTY, STAMP DUTY, LUXURY TAX ETC.

• Due to transparent, honest, efficient and effective governance, the overall revenue for the fiscal year 2015-16 has grown at an unprecedented rate of 17% as compared to previous
• Proper care has been taken in formulation of Tax Policy so that the dipstributive character of Delhi is maintained.
• VAT constitutes nearly 65% of total tax revenue.
• Multiple entries relating to some items create ambiguity and confusion which leads to harassment of traders. It has been attempted to simplify the taxation by bringing them into one entry.
• Utmost encouragement to voluntary compliance of tax has been attempted for a strong partnership with trade.
• VAT rate on battery operated transport means i.e. e-rickshaw, battery operated vehicle and hybrid automobile has been proposed to be reduced from 12.5% to 5%.
• VAT on Sweets and Namkeens has been proposed to be reduced from 12.5% to 5%.
• Tax rate on readymade garments costing above Rs.5,000/- has been proposed to be reduced from 12.5% to 5%.
• VAT on marble is proposed to be reduced from 12.5% to 5%.
• VAT rate on watches costing above Rs.5,000/- has been proposed to be reduced from 20% to 5%.
• Rationalization of tax on textiles and fabrics by applying uniform tax of 5% on all varieties of textiles and fabrics (including sarees except khadi and handloom fabrics) has been proposed.
• Tax on plastic waste has been proposed to be levied @5%.
• VAT on UPS units has been proposed to be increased to 12.5%.
• Currently footwears costing above Rs.500/- and school bags costing above Rs.300/- are taxable @12.5%. It is proposed to apply uniform VAT rate of 5% on all kinds of footwear and school bags irrespective of price.
• By launching of new scheme “Bill Banvao Inaam Pao” powerful impetus has been given to public participation.
• An award scheme has been launch for “Market Association”
• In Excise Department, the Inspector Raaj has been done away and point of levy of excise duty has been shifted from transport permit level to import permit level, this has resulted 31% increase in excise revenue collection.
• Luxuries Tax collection has increased 36.7%, while Entertainment Tax collection increased to 60%. Threshold limit of luxury tax is proposed to be increased from existing Rs.750 to 1500/- per day per room.
• Introduction of self declaration proposed in luxury tax.
• Amendments have been proposed in section 17 of Registration Act so as to make compulsory registration of several new instruments.
• It has been proposed to start online search facility for registered documents shortly. All legacy data since 1985 shall be scanned digitized and readily made available to public.

PART – B of Budget Speech of Delhi Budget 2016-17

115. Hon’ble Speaker Sir, I have dwelt at length upon the policies of the Government in Part-A of my Speech, and once again I state with the highest emphasis at my command that this Government is of, by and for the common man of Delhi. Every penny collected from the people, in the form of taxes and duties, is spent with utmost care and with all honesty and integrity.

116. It is a myth that only the rich pay taxes. The poor, the disadvantaged as consumers of goods and services also pay tax. Thus, while we have to mobilize greater resources to meet the goals outlined earlier we are committed to a tax structure which is just, fair and equitable.

121. Through our transparent, honest, efficient and effective governance, the overall revenue for the fiscal year 2015-16 has grown at an unprecedented rate of 17% compared to the previous year. This was possible through elimination of corruption at the highest levels and significant usage of technology at the levels where the citizens interface with the Government, deploying honest officers in sensitive positions, timely completion of infrastructural projects at reduced costs and reduction of all wasteful expenditure.

Value Added Tax

122. Sir, in the tax revenue, VAT constitutes the major part of our receipts, with nearly 65%- of total collections – and most of our developmental activities depend mainly on the buoyancy and elasticity of tax revenue from VAT. My taxation proposals are founded on the following principles:

123. The first and foremost principle of our taxation policy is to maintain the distributive character of Delhi’s trade.

124. Secondly, it is simplification of the existing system and promotion of an all-round ease of doing business.

125. Thirdly, multiple entries relating to the same item or a common group of items are a great source of ambiguity and confusion, which leads to harassment of traders and create a window for reporting manipulation leading to undesirable behaviour. We have tried to simplify it by bringing them under one entry to the extent possible.

126. Fourthly, our Government is fully committed to reducing tax arbitrage and will attempt to keep a uniform rate with neighbouring states. In several items such as sweets – namkeen, watches, readymade garments, lower tax rate in neighbouring States was causing erosion in the same. We have made efforts to remove such imbalances in our VAT structure.

127. Last and most important principle which is the motive force behind our taxation policy is to encourage voluntary compliance, and forge a strong partnership with the trade and the public.

128. Having regard to the above objectives, I propose modifications in the VAT rate which can be classified into two parts :

• Reduction in VAT rates
• Rationalization of tax rates

Reduction in VAT rates

129. Our Government is committed to check rising pollution due to automobiles and to promote use of environment friendly vehicles, VAT rate on battery operated transport means i.e. e-rickshaws, battery operated vehicles and Hybrid Automobiles (i.e. Battery driven with other fuel option), is proposed to be brought down from 12.5% to 5%.

130. Sweets and namkeens are presently taxable @ 12.5%, while the tax rate in Haryana and Uttar Pradesh is 5%. With a view to avoid geographical tax arbitrage, I propose to reduce the VAT on Sweets and namkeens to 5%.

131. At present, readymade garments upto ₹ 5000/- are taxed at 5%, those above ₹ 5000/- are taxed at 12.5%. Again in neighbouring States (U.P. and Haryana) all readymade garments are taxed at 5%. I propose to rationalize the tax rate by taxing all readymade garments @5%.

132. Marble in Delhi is currently taxable at 12.5% being an unspecified item. Marble Trade Association of Delhi has been requesting for lower tax rate to encourage people to buy marble from Delhi Traders only. I understand reducing the tax rate of marble from 12.5% to 5% would be in the interest of revenue and I propose accordingly.

Rationalizing of tax rate

133. Watches in Delhi are taxed differentially at 12.5% (watches upto ₹ 5000/-) and (20% watches above ₹ 5000/-), while they are taxed uniformly at 12.5% in neighbouring states. I propose a uniform VAT rate of 12.5% on all kind of watches.

134. Textile and fabric are presently covered under several entries in the tax rate schedules – some under the exempted list, while others in the taxable category of 5%. I propose to simplify this system by levying a uniform tax rate of 5% on all variety of textiles and fabrics (including sarees) except khadi and handloom fabrics.

135. Plastic waste continue to be exempted whereas plastic raw materials i.e. plastic granules, plastic power and master batches are taxable @5%. Since, plastic waste can also be recycled and used as raw material to make plastic articles, it is proposed to tax plastic waste also @5%.

136. Presently, inverters and UPS are taxable at general un-specified rate of 12.5%. However, there is a duplicate entry i.e. UPS units in Schedule III, which is leading to confusion. Therefore, I propose to omit this entry.

137. Presently, footwear above MRP ₹ 500/- are taxable @12.5%. I propose to rationalize the VAT rate on footwear by subjecting uniform rate of 5% to all footwear irrespective of price.

138. School Bags having MRP upto ₹ 300/- and MRP above ₹ 300/- are taxed at 5% and 12.5% respectively. I propose to rationalize by levying a uniform rate of 5% on all schools bags irrespective of price.

139. In the existing entry of Ferrous and Non-ferrous metals, there is no mention of aluminium or metal sheets, and some items are taxed at higher rate of 12.5%. To remove an ambiguity, I propose to modify the entry as “Ferrous and non-ferrous metals and alloys thereof including their sheets, foils and extrusions. Non-ferrous metals includes aluminium, copper, zinc etc.”

140. Sir, the Tobacco and tobacco products are currently taxable @20%. The relevant entry reads as under :-

“Tobacco and Gutkha, unmanufactured tobacco, bidis and tobacco used in manufacture of bid is and hooka tobacco”.

In order to make it more comprehensive, I propose to modify the entry as under :- “Un-manufactured tobacco, tobacco and tobacco products in all forms such as cigarettes (irrespective of form and length), chewing tobacco, gutkha, cigars, hookah tobacco, khaini, zarda, surti, bidis etc.”

141. In addition to reforms related to the VAT rates, this government has given a powerful impetus to the public participation in tax management by launching a new scheme of ‘Bill Banwao Inaam Pao’. Under this scheme, consumers in Delhi, while making any purchases can send the snapshot of retail bill / invoice to the department through a mobile application. This innovative scheme has promoted a unique partnership between the public and the VAT Department in the context of verification of sale / purchase transactions and compliance, which was based primarily on the visit of tax inspectors in the field only till now. Under the scheme 1% of the entries are shortlisted for award and prize money, thereby incentivizing the participation of consumers. The increasing success of the scheme can be measured from the fact that 8000 entries have been received in the month of February 2016 as against 4000 entries in the month of January 2016 when the scheme was launched.

142. The Government has also introduced a unique Reward scheme to acknowledge and further encourage market and trade associations contributing revenue over and above the targets set for the year. Such associations will get 10% of the revenue generated over and above the target set for the year. Besides this, top 10 performing market association will get cash reward of ₹ 5 lakh each. The award money is to be utilized for the overall improvement of the market and maintenance of public conveniences, beautification, repairs etc.

143. Mr. Speaker Sir, it is evident from the above details that our Government is decisively moving away from the past traditions of command, control and penetration of markets by the interventionist government to the role of an enabler and facilitator.

Excise Duty, Stamp Duty & Luxury Tax

144. Speaker sir, last year in my budget speech I had mentioned about streamlining the liquor trade and eradicating corruption. Today I am happy to inform this august house that the steps undertaken by the Government have started yielding results.

145. You may kindly recall that I had not increased excise duty on liquor last year. However steps were taken to plug loopholes to prevent leakage in excise revenue. We had shifted point of levy of Excise Duty from Transport Permit Level to Import Permit Level. Due to this and other reforms undertaken by the Government, there has been 31% increase in Excise Revenue Collections, from ₹ 3187 crore in 2014-15 to approximately ₹ 4200 crore this year, an all-time high. Inspector raj has been done away with. In the time to come, these existing reforms will not only continue but more such reforms are likely to be introduced.

146. The revenue collection from Luxury Tax has seen an increase of 36.7percent. As against last year’s ₹ 322 crore of revenue from Luxury Tax, this year will exceed ₹ 440 Crore is estimated to be collected.

147. As another step towards a simplified tax regime, I to announce the increase in threshold limit of Luxury Tax from existing ₹ 750 to ₹ 1500. This will reduce tax burden on citizens and tourists and make it easy for small hotels to do business.

148. As on today assessment of all hotels is compulsory. My Government has decided to introduce self declaration in Luxury Tax. Assessment will be done on random basis.

149. The revenue collection from Entertainment Tax has seen an increase of 60 percent. As against last year’s ₹ 148 crore of revenue from Entertainment Tax, this year exceed ₹ 237 Crore is estimated to be collected.

150. Sir, our Government is deeply conscious that tax rates/duties must be in line with economic realities. Given the slowdown in the real estate sector, our government (unlike previous policies) held the circle rates in urban areas stable and did not increase them. I am happy to announce that against stamp duty collection of ₹ 2779 crore up to 31st March, 2015, the stamp duty collection was ₹ 3359 crore up to 22/3/2015 which is 21% higher than last year. In order to keep up the momentum, various new initiatives are being proposed so as to enhance the quantum of stamp duty collection.

151. A separate Stamp Act for Delhi is on the anvil. The Bill aims to simplify provisions, reduce arbitrary power and at the same time increase revenue. Another new initiative has been on-line payment of stamp duty for companies issuing shares and debentures. Efforts are being made to bring more transactions into the net of registration and stamp duty. Amendments have been proposed in Section 17 of Registration Act so as to make compulsory registration of several new instruments.

152. Our Government proposes to start online search facility for registered documents shortly. All legacy data since 1985 shall be scanned, digitized and readily made available to public for search.

153. “I should love to satisfy all, if I possibly can; but in trying to satisfy all, I may be able to satisfy none. I have, therefore, arrived at the conclusion that the best course is to satisfy one’s own conscience and leave the world to form its own judgment, favorable or otherwise.” ― Mahatma Gandhi