This year’s Union Budget will be unfolded in the midst of unpredictable impact of the third wave of Covid-19 and financial constraints emerging from unplanned expenditure and retrenchment of economic activity especially in sectors such as tourism, hospitality, travel, etc.
Under these circumstances, the budget is expected to primarily focus on re-igniting the economic activities by increasing the spend on public infrastructure, healthcare, public welfare especially in rural areas including agriculture infrastructure and recapitalise the financial institutions. This could create employment and improve the disposable income in the hands of low- and middle-income groups which in turn will boost demand and consumption.
On the fiscal side, while the finance minister will be pleased with unexpected increase in the indirect tax revenue collection in FY 21-22 both in GST and Customs duty, the Union Budget 22-23 may continue to focus on three themes (a) widening the tax base, (b) enhancing compliance and preventing evasion by using technology (c) reducing litigation.
On the customs duty front, revamping of various customs exemption notifications as announced in previous budget should be expected. It is likely that the rate of primary inputs/intermediaries may be rationalised; and the rate of finished product may be increased to provide a tariff protection to promote domestic manufacturing in India. This may result in price rise in the import intensive sectors such as consumer durables, auto, electronics etc.
Also, considering the success of amnesty schemes for excise and service tax and to further reduce the burden of litigation in customs, one can expect an announcement of amnesty scheme under Customs. This should help clear pending litigation and help to mop up revenue for the Government.
Incentive Schemes for manufacturing sector to promote Atmanirbhar Bharat
The Government’s focus on domestic manufacturing is strategic and is manifested through the announcement of Production Linked Incentive (PLI) Schemes for various sectors. During the year, additional PLI Scheme for drone and drone components was announced which was not part of the earlier schemes covering ten sectors. Focus is now being given to development of semiconductors and display manufacturing ecosystem in India with an announcement of budgetary outlay of INR 76,000 crore. As per government estimates , introduction of PLI scheme alone would help us to grow our GDP over USD500 billion in five years. Thus, announcement of similar schemes to help promoting new industries/products should be expected.
Goods and Services Tax
With a focus on ease of doing business, Government has taken number of initiatives during the previous year such as withdrawal of requirement for GST audit, allowing transfer of unutilised balance in CGST and IGST cash ledgers, extending the compliance periodicity and rationalisation of late fees. It has also taken audacious steps to limit input tax credit based on Form GSTR-2B, thus compelling the suppliers to file Form GSTR-1 on timely basis.
The positive trend in GST collections is likely to continue due to economic recovery and anti-evasion measures through the use of a Business Intelligence and Fraud Analytics (BIFA) tool and Memorandum of Understanding (MoU) between CBIC and CBDT for sharing of information on automatic and regular basis.
The decision on the issue of inverted duty structure and rate rationalisation is unlikely to be taken during this budget as Group of Ministers will have to submit their report to the GST Council in February 2022 who will thereafter make suitable recommendations.
On the GST law front, it is expected that government will propose amendments to align the GST law with respect to the decisions taken in the GST Council meetings including the GST return structure, levy of interest only upon utilisation of ITC. One can also expect some additional relief on the time limit to undertake revision or claim ITC pertaining to previous year which is currently valid till filing of return for the month of September. It will be worthwhile to see whether the GST law is amended to provide the facility to rectify and submit revised GST return which has been the need of the industry for a long time.
While Industry expects that petroleum products should be included in the GST regime, it is however an unlikely proposition in the current situation given the revenue shortfall faced by the State Governments. However, industry would expect government to lay down a road map for including such products in GST regime.
Overall, the budget is likely to spell policies and measures that target demand generation, job creation, and help the economy maintain a sustained eight per cent plus growth rate.