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Pre-Budget Expectations For IT Sector

While the GST Council has been taking suitable corrective measures for smooth implementation of GST, there are other aspects which the government needs to focus to boost the economy

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India has just experienced its big bang moment with the introduction of the Goods and Service Tax (GST), a mammoth change in the indirect tax space, and we already find ourselves at that time of the year when the focus of the government shifts to the annual Budget.

The year has been full of action in the indirect tax space due to the implementation of the GST, regular monthly meetings of the GST Council and the mid-term review of the Foreign Trade Policy. The focus of the government in each of the previous Budgets on the indirect tax front and the GST Council meetings has been consistent in terms of the objective and one expects that the government would have a clear agenda set forth for the annual 2018-19 Budget as well.

While the GST Council has been taking suitable corrective measures for smooth implementation of GST, there are other aspects which the government needs to focus to boost the economy. One such important aspect is the Make in India vision of the Prime Minister. With the launch of the Make in India and Digital India initiatives, the government recognized the criticality of boosting the ESDM (Electronics and IT Hardware manufacturing) sector in order to meet the Prime Minister’s vision of net zero imports by 2020. The Make in India indirect tax impetus under customs and central excise has had success with increase manufacturing of select products. However, the concessional excise duty benefits which were offered prior to implementation of GST has been annulled with the introduction of GST. In order to ensure that the erstwhile concessional excise duty benefit is continued even under GST, there is need for the government to go back to the drawing board to review its strategy to ensure that the vision of Prime Minister is achieved.  

The industry is also hopeful that basic customs duty (BCD) on import of select non ITA goods would be raised to a permissible limit in order to discourage traders from importing such goods into India and selling the final product with mere screw driver assembly technology. In fact, in December 2017 we have seen an increase in the rate of customs for select technological / electronic goods such as mobile phones by 5%, television sets by 10%, digital cameras by 5%, etc. This should push growth of domestic manufacturing industry with focus on real local value addition and boost our capabilities to deliver world class products globally. In addition to catering to the domestic market, the government would also focus on an export-oriented strategy not just for high-end manufacturing but also for the consumer manufacturing sector to achieve the necessary volumes to be globally competitive, expanding the scope of Make in India for India to ‘Make from India’ for India and for rest of the world.  

In order to promote domestic manufacturing in India, the government released the phased manufacturing programme for ensuring manufacturing of parts / components of electronics industry in India. In this regard, printed circuit boards (PCBs) are considered to be the backbone of the electronics industry, as it is used in the manufacture of almost all electronic articles. However, India’s PCB industry is still nascent and the biggest challenges faced by PCB manufacturers are insufficient supply chain of raw materials, high capex requirements, competent overseas industries providing access at a much lower cost, logistic inefficiencies, infrastructural bottlenecks, etc.

 Hence, it is hoped that the government would provide sufficient measures to see sustainable growth and expand the Indian PCB industry. Further, the government has entered into free trade agreement (FTA) with specified countries such as Thailand and ASEAN which allow for import of electronic goods at lower customs duty from such countries. Accordingly, import of components and parts for manufacture of goods would attract higher customs duty in comparison to import of specified finished goods from FTA countries, which is not helping the domestic manufacturing industry. Hence, it is expected that such anomaly would be corrected by the government in the upcoming Budget.  

On the GST front, it is important to note that it is the GST Council (represented by the states and the Center) that is empowered to make decision on policy and other matters. Hence, it is expected that the Budget would provide directional oversight to key decisions expected to take place at the GST Council. Accordingly, inter alia the possible directional announcements are expected on the following aspects:

•    Announcement with regard to having centralized registration and raising of invoice for select categories of multi-state service providers under GST in line with the position that prevailed under the erstwhile service tax law;

•    Changes to ensure that compliance burden is reduced in terms of periodicity and volume with regard to e-way bills, inputs details required for reporting, etc,; and

•    Refunds to be paid on the GST paid on capital goods where the same is used in export / zero rated supplies.

With the teething issues gradually reducing on account of implementation of GST, from an indirect tax stand point, the focus is on the changes to be made from the policy front to boost economy and realize the vision of the Prime Minister of Make in India and Digital India.

With inputs from Mamatha Anand, Director and Ankush Surana, Manager, Deloitte India

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.


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Mahesh Jaising

The author is Partner, Deloitte India

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