In line with the Finance Minister’s stated policy of maintaining a stable tax regime, Budget 2013-14 has not introduced any significant changes on the indirect tax front. There are no changes in indirect tax rates — peak customs duty, service tax rate and excise duty rate would continue at 10 per cent, 12 per cent and 12 per cent respectively.

The few amendments proposed in tax rates seek to achieve the broad objective of taxing the rich. To this end the customs duty on high-end passenger cars, motorcycles and yachts has been increased. Further, excise duty on SUVs has been increased from 27 per cent to 30 per cent, other than taxis. Separately, the rate of abatement for homes and flats with a carpet area of 2,000 sq ft or more, or of a value of Rs 1 crore has been reduced from 75 per cent to 70 per cent. Also, service tax has been extended to all air-conditioned restaurants irrespective of whether they serve liquor or not. Mobile phones priced above Rs 2,000 will now attract a higher excise duty at 6 per cent as against a lower 1 per cent for lower-priced mobile phones. Excise duty on cigarettes, cigars and cigarillos has also been increased. These changes will increase the tax or duty levied on luxury products and services, and contribute to a higher indirect tax collection without burdening the common man.

Further, the Finance Minister has made the penal and prosecution provisions more stringent. In case of contraventions by a company, the director, manager, secretary and so on who are knowingly at default may be charged with penalty up to Rs 1 lakh. Further, the Budget has prescribed revised punishments for offences, making certain offences cognisable and others non-cognisable and bailable. Thus, overall, the focus seems to be on increasing the deterrence mechanism against non-compliance. However, such measures are likely to cause anxiety to honest taxpayers, given the potential for misuse by tax authorities.

While making penal and prosecution provisions more stringent, the Budget also proposes a Service Tax Amnesty Scheme. The logic in introducing it is the fact that while a large number of taxpayers are registered under service tax, a majority are not filing returns or depositing tax. In order to encourage voluntary compliance and increase tax collection, this one-time amnesty proposed to waive payment of interest and penalty for past service tax defaulters, as well as provide immunity from prosecution. People applying for the amnesty scheme would need to submit declarations of their tax dues and deposit 50 per cent of the tax by December 31, 2013, and the remaining 50 per cent by June 30, 2014 — in fact, they can deposit the second instalment by December 31, 2014, on payment of interest. Like any amnesty scheme, this one is also likely to be controversial as it condones tax defaults at no penal or interest charge, and this is not likely to be appreciated by any tax-compliant assessee.

The Minister has also reiterated the commitment to introduce GST and announced that a draft bill will be presented in Parliament in the next few months. Further, to indicate his seriousness, he has announced compensation of Rs 9,000 crore for States on account of reduction in CST rate.

Overall, the indirect tax proposals are fairly lacklustre and seek to maintain stability.

(Bipin Sapra is tax partner, Ernst & Young)

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