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Budget 2021: Industry seeks tax clarity and relief

Fortune India |
Gunjan Prabhakaran, Partner and Leader
Indirect Tax

28 January 2021

Considering the adverse effects of the Covid-19 pandemic and the ensuing recession, businesses hope for this Budget to be a game changer.

As the government prepares to present its annual statement of income and expenditure, the pandemic-hit economy has huge expectations from this year’s Budget. The commencement of administration of vaccines has raised hopes amongst the population and the urge to return to normalcy is strong. The thrust continues to be on economic recovery and support for the sectors, hit hard due to the pandemic.

The common citizen is hoping for income tax reliefs in the form of reduced tax rates and increased tax deductions. But given that the government is operating on a shoestring budget, it is highly unlikely that there may be a lot in store for the common citizen on this count.

Some key demands made by critical sectors and industry are:

The aviation sector, which underwent a complete shutdown following the global lockdowns, expects one of its long-standing demands to bring aviation turbine fuel (ATF) under the ambit of GST. ATF accounts for almost 40% of the cost in the aviation sector and bringing it under GST would significantly reduce the cost by eliminating cascading of taxes and allowing credit on input GST paid.

The tourism and hospitality sector, too, is pushing forward with one of its old demands for determination of GST rate on hotel accommodation services based on the actual price charged, and not on tariff rent of rooms, as currently in existence. This is largely needed now as hotels are providing rooms for rent at huge discounts to revive their business.

On the administrative front, the logistics sector is seeking clarity on the classification of transportation services and cargo handling services—which has led to tax disputes against demands from tax authorities for a higher rate of GST on services rendered. This will help the sector operate with ease.

All sectors also expect an amendment in the valuation mechanism of GST, to exclude other taxes and levies from the value of supplies. Currently, GST is levied on the value of supplies, including all taxes and levies other than GST. This has led to an increase in costs due to the cascading of taxes and defeats the key purposes of GST. Trade and industry expect the government to set this right by amending the valuation methodology to exclude all taxes and levies.

From a liquidity standpoint, under the current provision of GST law, the recipient is required to pay their supplier within 180 days from the date of issuance of invoice. If the payment is not made, the Input Tax Credit (ITC) availed is required to be added to the output tax liability along with interest. In addition, TDS (tax deducted at source) and TCS (tax collected at source) are also applicable on certain payments for supplies made by certain types of recipients. These requirements under GST have been causing serious problems to MSMEs in management of their working capital, at a time when they are facing severe constraints in terms of liquidity. They expect the government to understand their hardship and relax these provisions until the pandemic is over.

he government is also expected to extend the ‘Sabka Vishwas’ legacy dispute resolution scheme. As the scheme was only in force for a short period, in the middle of the pandemic, most taxpayers were unable to avail the scheme for settlement of their legacy indirect tax disputes. The scheme also didn’t provide clarity on various issues regarding eligibility, partial availment, clubbing of issues over different periods, etc. to enable taxpayers to apply for the scheme. It is widely felt that a re-introduction of the scheme would benefit both the government in terms of revenue as well as allow the industry a sought-after way for settlement of long-pending disputes.

Further, the government should provide a framework to give income-tax relief to select sectors viz., automobiles, consumer goods, real estate and provide an income-tax deduction to taxpayers on purchase of goods or availing services to promote consumption.

Considering the adverse effects of the pandemic and the ensuing recession, businesses and people hope for this Budget to be a game changer. Though much is needed and asked, we hope the government addresses all the issues in the best possible way through this Budget and steers our economy towards a path of recovery and development.