|"The reduction of Central sales
tax from 4 per cent to 3 per cent is welcome, but hardly the
stuff 'dream budgets' are made of. The Budget does not have
any new initiatives but continues the course already charted
to industry expectations, indirect taxes have not seen any significant
changes in Budget 2007.
Unlike the previous year's Budget, there
has been minor tinkering with service tax. In the interest of
the small service providers, the threshold limit has been doubled
from Rs 4 lakh to Rs 8 lakh. The ambit of taxable services has
been widened with the introduction of seven new services, including
renting of immovable property, development and supply of content
for use in telecoms and advertising, mining related services,
design services like furniture design, aesthetic design, consumer
or industrial products, logos etc. The imposition of service tax
on property rental is expected to increase the service tax burden
Service tax is also proposed to be levied
on services involved in execution of works contract such as construction,
erection, installation and commissioning services etc., but specifically
excludes maintenance and repair from its ambit. The Finance Minister
also mentioned providing an option to works contractors to pay
service tax under a composition scheme at 2 per cent of the total
value of the works contract instead of 12.36 per cent on the service
component. Introduction of this service category is, however,
likely to overlap with the existing service categories for construction,
installation etc and create disputes. Ambiguity with regard to
export of service has been considerably cleared by replacing the
condition of 'delivered outside India and used outside India'
with 'provided from India and used outside India'.
In continuation of the policy of aligning
the customs duty rates to the ASEAN level, the peak rate customs
duty has been reduced from 12.5 per cent to 10 per cent. The ad
valorem component on textile fabrics and garments has been reduced
from 12.5 per cent to 10 per cent. Crude and refined edible oils
have been exempted from the 4 per cent additional duty of customs.
Customs duty on food processing machinery has been reduced to
5 per cent from 7.5 per cent and that on medical equipment from
12.5 per cent to 7.5 per cent. In an apparent attempt to discourage
the export of scarce iron ore, export duty at the rate of Rs 300
pmt on iron ore and concentrates has also been imposed.
While no changes have been made to the Cenvat
rates, the threshold limit for exemption has been increased from
Rs 1 crore to Rs 1.5 crore to encourage the small-scale industries
(SSIs). Excise duty exemption has been extended to food mixes,
specified water purification devices and household water filters.
There has also been a reduction of the ad valorem component of
the excise duty on petrol and diesel from 8 per cent to 6 per
cent while bio-diesel has been exempted from duty. The fm has
proposed to reduce the present rate of excise duty of Rs 400 pmt
to Rs 350 pmt on cement sold in retail at not more than Rs 190
per bag. Cement sold at a higher MRP will attract excise duty
of Rs 600 pmt.
To boost the man-made fibre and yarn industry,
the customs duty on polyester fibres and yarns and inputs used
therein, have been reduced from 10 per cent to 7.5 per cent. However,
exemption from excise duty to specified textile machinery has
been withdrawn with levy of an excise duty of 8 per cent.
The UPA Government's fourth Budget does not
hold any surprises. The reduction of Central sales tax from 4
per cent to 3 per cent is welcome, but hardly the stuff "dream
budgets" are made of. The Budget does not have any new initiatives
but continues the course already charted out, without any signs
of accelerating down the road to tax reform and simplification.
Vivek Mishra is Partner (Indirect Tax), Global
Tax Advisory Services, Ernst & Young