It was expected that an attempt would be made to boost the economy and encourage manufacturing and consumption. However, the prime focus this year has been the fiscal consolidation and as a result, most of the expectations mentioned above have not been adequately addressed.
As far as indirect taxes are concerned, the government has made some concrete announcements (such as tax compensation to the states) for transition to a GST regime that would replace the existing indirect tax regime, though the likely timeline for the introduction of GST has not yet been declared.
In fact, it appears that the Finance Minister has refrained from making any structural/major changes in the existing indirect tax regime this year unlike last year when service tax law was completely revamped with the introduction of the Negative List regime. In fact, the Finance Minister has not tinkered with the general rates of indirect taxes which does come as a relief. However, there have been changes in terms of coverage/rates with respect to certain transactions. For example, the coverage of service tax law has been extended on all kinds of air conditioned restaurants (as against the earlier scenario where tax was applicable to air conditioned restaurants having a license to serve liquor). Another such example is increase in duty rates on mobile phones and SUVs.
Apparently, the focus this year has been more on administration and compliance related aspects so as to encourage compliance/enforcement through a carrot and stick approach. To illustrate, a one-time amnesty scheme has been introduced for the service providers, directors/managers of the companies have now been made personally responsible for tax defaults in certain cases, the maximum term of imprisonment has been extended from 3 years to 7 years for certain offences. Also, some offences (like failure to deposit service tax with the government within the specified period after collecting it from the customers) have now been made non-bailable.
While tightening of compliance measures is understandable, it would have been even better if the government coupled this with proposals to further rationalize the indirect tax regime. To illustrate, industry was expecting amendments in the credit/refund regime to ensure that there are no credit blockages, which has not happened. Similarly, while the introduction of the Negative List regime in 2012 was welcomed by the industry given the overall context, the form and the manner in which this regime has been introduced has given rise to a fresh set of challenges such as the interpretation of the term ‘service ‘and operational difficulties in implementing the reverse charge mechanism, etc. It was expected that the government would address these issues.
To summarize, it is apparent that an attempt has been made to walk the tightrope between strong fiscal measures and high expectations of the taxpayers. However, it still remains to be seen whether this budget would be able to achieve the desired results of reducing fiscal deficit, reigning inflation and bringing back investor confidence.