Union Budget 2024: Augmenting value addition, tax certainty & trade facilitation

Union Budget: The Budget proposals 2024-25 aim to advance India on its growth trajectory. With a keen focus on increasing manufacturing, it seeks to bring the vision of Viksit Bharat closer. Thematically, adoption of technology, green transition and manufacturing have emerged as pillars around which budget proposals on tax have been announced. Upholding continuity, the proposals seek to uphold the mission of Make in India and Digital India.

In alignment with this broader vision, while announcements on the PLI front remain conspicuously absent, the proposed comprehensive 6-month review of Customs rates and immediate rate cuts in certain priority sectors indicate a deeper push towards incentivization of domestic value addition and promoting India’s export competitiveness. Some of the sectors that have seen a downward revision in rates are mobile handsets, energy sector, critical minerals, leather and textiles.

Other notable proposals to note in Customs duty are trade facilitation measures. While GST was introduced in 2017 in a fully digitised manner, digitisation has been taking place slowly but surely in Customs as well, with the FM announcing this time that all records would be digitized in Customs over the next 2 years. Separately, one providing ease to the industry is acceptance of self-certification as ‘proof of origin’ while claiming concessional duty rates for imports under FTAs.

Moving on to GST, hints of GST rate rationalisation have been doing the rounds for many years, confirmation of this by the Finance-Minister in the budget speech has set the ball rolling and the industry must brace itself for this change. It will be one of the more significant changes in the last 7 years, spent under a 4-rate structure. It goes without saying that a change in the GST rate structure will have a cascading impact, across accumulation of input tax credits and tax outgoes, and may trigger anti-profiteering provisions as well, if carried out before the sunset. However, it must be said that to reduce litigation (with increasing classification disputes), reduced and simplified rate structure will bring in much-needed certainty and ease of doing business in India.

The Budget speech also briefly speaks of expansion of GST to other sectors, whilst not giving away any specifics. A very interesting announcement, again one that can have a significant impact. As an illustration, inclusion of natural gas under GST has been a long-standing demand of the industry, which can increase fungibility of credits, currently being borne by the end consumer. The change in the taxation structure will not only lead to reduction in prices but is likely to have a muti-fold impact on cost of products across sectors.

Additionally, it would also accelerate the shift to cleaner fuel, navigating the path towards the achievement of India’s net zero emission targets. Thus, while this announcement seems innocuous, it would have far-reaching ramifications.

Another positive move towards trade facilitation is the proposed change in the litigation related norms. To alleviate the burden of pending GST litigation matters, an amnesty scheme has been introduced providing a conditional waiver of interest and penalty for matters, where full tax has been discharged in cases of demand notices issued under section 73 (non-fraud matters) for the first 3 years of GST i.e., till FY 2020. While the coverage of the Amnesty Scheme could have been broad-based to cover matters where notices have not been issued under 73, and likely to be issued under section 74, it is a welcome measure and will help the industry in closing out some of the recurring industry issues.

An additional step towards lowering litigation costs is the convergence of time limits for issuance of notices under GST from 5 years to 3.5 years for cases related to fraud/ suppression from FY 2024-25 onwards. This is likely to end unnecessary litigation around cases of fraud/ suppression, as the concept of an extended period of limitation has effectively been done away with. Only penal consequences would differ for matters where notices are issued for fraud/ suppression.

With GST Tribunals to be set up soon, there has been a positive announcement with reduction in pre-deposit amounts required to be deposited at appellate forums. Also, the Centre has been empowered to notify dates for filing of appeals before the GST tribunals.

Overall, this budget lays down the genesis of the roadmap to achieving a developed economy status. It has restressed the focus on domestic value addition which can plug India in global supply chains and foster growth.

The author is Partner, Indirect Tax, KPMG India. Additional inputs in the article are by Amit Goyal, Chartered Accountant

Disclaimer: Views and opinions expressed in these communications do not necessarily represent those of KPMG (in India).