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Union Budget 2017 and GST Implementation

Feb 03, 2017

The Union budget tabled in the Parliament on the 1st of February 2017 is momentous and historic in many ways. Doing away with the tradition of being presented on the last day of February, the Union Budget 2017 was tabled a month earlier. Also, the Railway and Union Budget were clubbed together and the presentation was completely green i.e. paperless. This move can be expected to hail a new era of speedy implementations of government schemes. Flagging off the move, PM Narendra Modi on 26 October 2016, while addressing his 16th interaction, had urged all states to align their plans and prepare for an advanced budget session.

One of the significant topics discussed at the 2017 Union Budget was the Goods and Services Tax (GST) Bill. Paving the path for GST, the Union Budget has refrained from making any major changes in the structure of the indirect taxation system. Though the expected timeline of 1st April 2017 for the implementation of GST, has been formally dismissed by officials, the renewed date of implementation has now been set for July 1, 2017. In view of GST implementation, service tax rate (15 percent) and excise (12.50 percent) have been maintained.

GST Council has finalised recommendations on all issues, the preparedness of IT is on schedule. Preparatory work on GST is top priority of the government. Several teams of the Centre and states are working towards it. ­– Finance Minister Arun Jaitley said while presenting the Union Budget 2017.

Key budget factors that will impact the implementation of GST have been analyzed here:

  • Direct Tax: For annual income that falls between the slab of Rs. 2.5 lakhs and Rs. 5 lakhs, the rate of income tax has been reduced from 10 percent to 5 percent. This move has been welcomed as a relief to tax payers, given the fact Indian economy is considered an economy of tax evasion. It will reduce the tax outgo and will help tax payers keep money in their hands. The government can expect this saved tax money to be used by consumers, thereby assisting circulation of money and demonetization.
  • Customs: Goods with CIF value of less than Rs. 1000, imported via postal parcels, packets and letters, will be exempted from customs duty. To sustain the concept of a digital economy, Union Budget 2017 has proposed customs exemption for digital devices such as micro-ATMs, Iris scanners, fingerprint readers/scanners and POS card readers. This has been done to ensure digital technology is made accessible to small business owners and shopkeepers at cheaper rates.

Solar tempered glass, used for making solar panels, will also not attract any customs duty. However, for imported cashew nuts, the basic customs duty has been increased from thirty percent to forty five percent.

  • Excise: Imported silver medallions and coins that have silver content of more than 99.9 percent, silver articles and semi-manufactured silver will be levied excise duty of 12.5 percent. Thus, silver is expected to become costlier.

Like every year, the excise duty/health cess on smoking products has been increased. Cigarettes, cigars, bidis, gutkha, etc. will be costlier. Also, duty on 10-13 seater vehicles has been brought down from 27 percent to 12.5 percent.

2017 Union Budget Paving Way for GST

Implementation of GST is likely to bring more taxes both to central and state governments because of widening of tax net. I have preferred not to make many changes in current regime of excise and service tax because the same are to be replaced by GST soon. Arun Jaitley.

The key budget factors discussed above will definitely pave the way for unobstructed implementation of GST. Wide speculations about the raise of the service tax to align it with the GST structure, was given a miss. This move was welcomed by the public at large. Another significant change was the repeal of the Research and Development Cess Act. This 5 percent tax applicable on the import of technology, under the GST structure was not to be subsumed with other taxes and would have incurred a charge in the value chain. With the cess being revoked, the industry has found a solution.

The 2017 Union Budget also introduced changes in sectors like renewable energy and chemicals. Customs and excise duty have been revised to remove the discrepancies brought about the current inverted tax structure. SAD (Special Additional Duty) on mobile phones and printed circuit boards has also been revised.

The Authority for Advanced Rulings (AAR), a body constituted for income tax, will from now on address applications of both types: direct taxes and indirect taxes. The initiation of an all encompassing AAR is a step that will create some synergy in the tax structure before the GST bill is rolled out. Also, the Income Tax Settlement Commission has been authorised to amend its order to rectify any error. Previously, the Settlement Commission did not have the power to reopen proceedings.

The Union Budget also states that the Bill of Entry for import clearance, is to be submitted within a day of the arrival of the goods and the customs duty is to be paid the following day. This shifts the responsibility on the importers to process customs formalities faster.

GST to take over soon….

The Union Budget 2017 has been brought to the table along the lines of expectations for the implementation of GST. Though there are still some technical issues related to GST that need clarification, the nation’s economy is, without a doubt, revamping itself to welcome India’s most profound indirect taxation system.

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