Sitharaman promises to smoothen GST further, remove anomalies
New Delhi, February 1, 2021
Finance Minister Nirmala Sitharaman today assured the Lok Sabha that the Government would take every possible measure to smoothen the Goods and Service Tax (GST) further and remove anomalies such as the inverted duty structure.
Presenting the Union Budget for 2021-22 to Parliament, Sitharaman said the GST Council had painstakingly thrashed out several thorny issues in recent months.
She said GST was now four years old and the Government had taken several measures to simplify it, including filing of Nil return through SMS; quarterly return and monthly payment for small taxpayers; electronic invoice system; validated input tax statement, pre-filled editable GST return; and staggering of returns filing.
"The capacity of the GSTN system has also been enhanced. We have also deployed deep analytics and artificial intelligence to identify tax evaders and fake billers and launched special drives against them.
"The results speak for themselves. We have made record collections in the last few months," she said.
Turning to her indirect taxation proposals in the Budget, Sitharaman prefaced them by pointing out that the Custom Duty Policy should have the twin objective of promoting domestic manufacturing and helping India get onto global value chain and export better. The thrust now has to be on easy access to raw materials and exports of value added products.
"Towards this, last year, we started overhauling the Customs Duty structure, eliminating 80 outdated exemptions.
"I now propose to review more than 400 old exemptions this year. We will conduct this through extensive consultations, and from 1st October 2021, we will put in place a revised customs duty structure, free of distortions. I also propose that any new customs duty exemptionhenceforth will have validity up to the 31st March following two years from the date of its issue," she said.
As part of the indirect taxation proposals, Sitharaman said a few exemptions on parts of chargers and sub-parts of mobiles were being withdrawn for greater domestic value addition. She noted that domestic electronic had grown rapidly and the country was now exporting items like mobile phones and chargers.
Further, some parts of mobiles will move from "nil" rate to a moderate 2.5%, she said.
Given that MSMEs and other user industries have been severely hit by a recent sharp rise in iron and steel prices, Sitharaman proposed to reduce Customs duty uniformly to 7.5% on semis, flat, and long products of non-alloy, alloy, and stainless steels. To provide relief to metal re-cyclers, mostly MSMEs, she exempted duty on steel scrap for a period up to 31st March, 2022. Further, she has also revoked ADD and CVD on certain steel products.
To provide relief to copper recyclers, she reduced duty on copper scrap from 5% to 2.5%.
Sitharaman said the textiles sector generated employment and contributed significantly to the economy and there was a need to rationalize duties on raw material inputs to manmade textiles.
"We are now bringing nylon chain on par with polyester and other man-made fibers. We are uniformly reducing the BCD rates on caprolactam, nylon chips and nylon fiber & yarn to 5%. This will help the textile industry, MSMEs, and exports, too," she said.
Sitharaman said the Government had calibrated customs duty rates on chemicals to encourage domestic value addition and to remove inversions. Apart from other items, she proposed a reduction in customs duty on Naptha to 2.5% to correct inversion.
"Gold and silver presently attract a basic customs duty of 12.5%. Since the duty was raised from 10% in July 2019, prices of precious metals have risen sharply. To bring it closer to previous levels, we are rationalizing custom duty on gold and silver," she said.
Sitharaman said that, to build up domestic capacity in solar energy, the Government would notify a phased manufacturing plan for solar cells and solar panels. "At present, to encourage domestic production, we are raising duty on solar invertors from 5% to 20%, and on solar lanterns from 5% to 15%," she said.
"There is immense potential in manufacturing heavy capital equipment domestically. We will comprehensively review the rate structure in due course. However, we are revising duty rates on certain items immediately. We propose to withdraw exemptions on tunnel boring machine. It will attract a customs duty of 7.5%; and its parts a duty of 2.5%.
"We are raising customs duty on certain auto parts to 15% to bring them on par with general rate on auto parts," she said.
Sitharaman also proposed certain changes to benefit MSMEs. "We are increasing duty from 10% to 15% on steel screws and plastic builder wares. On prawn feed we increase it from 5% to 15%. We are rationalizing exemption on import of duty-free items as an incentive to exporters of garments, leather, and handicraft items. Almost all these items are made domestically by our MSMEs," she said.
She also announced withdrawal of exemption on imports of certain kind of leathers as they are domestically produced in good quantity and quality, mostly by MSMEs.
"We are also raising customs duty on finished synthetic gem stones to encourage their domestic processing," she said.
Sitharaman proposed, to benefit farmers, raising customs duty on cotton from nil to 10% and on raw silk and silk yarn from 10% to 15%. She also withdrew end-use based concession on denatured ethyl alcohol.
"Currently, rates are being uniformly calibrated to 15% on items like maize bran, rice bran oil cake, and animal feed additives.
"There is an immediate need to improve agricultural infrastructure so that we produce more, while also conserving and processing agricultural output efficiently. This will ensure enhanced remuneration for our farmers.
"To earmark resources for this purpose, I propose an Agriculture Infrastructure and Development Cess (AIDC) on a small number of items. However, while applying this cess, we have taken care not to put additional burden on consumers on most items," she said.
The Finance Minister said that, for their judicious application, we propose certain changes in the provisions relating to ADD and CVD levies. "To complete Customs investigations, we are prescribing definite timelines. In 2020, we rolled out the Turant Customs initiative, which brought in Faceless, Paperless, and Contactless Customs measures. With effect from September 2020, we have implemented a new procedure for administration of Rules of Origin. This has helped in putting a check on misuse of FTAs," she added.