Budget expectations: Indirect taxes – Budget news 2024

By- MS Mani

This Union budget comes at a very interesting time in economic life of Bharat, as India is locally known, against the backdrop of good GDP growth, comfortable foreign exchange reserves, manageable fiscal deficit, forecasts of a normal monsoon and record tax revenues from both direct and indirect taxes. This confluence of favourable factors has not been seen often in the past and is expected to give policymakers the confidence to go ahead with the reform agenda to enable us to achieve the Viksit Bharat target by 2047.

short article insert From an indirect tax point of view, after 2017 when the GST was introduced, the Union Budget focused on changes in customs duties, as changes in GST are overseen by the GST Council. However, the thought process on GST reforms is often mentioned in the budget speech, which gives us an indication of the thinking among policymakers about the next set of expected changes in GST.

Now that the GST has been in existence for seven years, it is expected that it is now appropriate to make the GST even more business-friendly by:

Reduce the number of tariffs and have only three tariffs: an average tariff, a tariff for essential goods and a higher tariff for a few goods that are considered ‘sin’ goods. A roadmap for such tariff rationalisation in the Union budget would be very much appreciated by the business community.
The phased inclusion of petroleum products under the GST framework, with natural gas and ATF being included initially, followed by petrol and dieselIf the Union budget includes a generous timeframe for this exercise, it would allow businesses to plan.
Removing import tax barriers in certain sectors like financial services, hospitality etc. would go a long way in making GST a simple tax and making these businesses more competitive. A hint in that direction in the Union Budget that policymakers are seizing the ITC challenges that companies are facing and working on would reassure affected companies and give them the confidence to plan for the years ahead.

As mentioned above, the Union Budget is expected to provide a clear direction and statement of intent. The details of all such measures will of course have to be discussed and approved in the GST Council.

On customs duties, the Union Budget comes at a time when Bharat is looking to boost domestic manufacturing, reduce import dependency on essential items and increase the contribution of non-traditional products to exports.

While the Production Linked Incentive (PLI) scheme has been a great initiative to establish a manufacturing footprint in several new areas, many companies still depend on imports of raw materials and components to meet their PLI obligations. These raw materials and intermediaries have to be imported from a limited group of foreign manufacturers and the Basic Customs Duty (BCD) rate imposed on these products significantly increases the cost of the final product. It is essential to note that BCD, which can range from 5% to 12.5%, cannot be offset by a manufacturer and therefore becomes an additional cost. Therefore, a reduction in Basic Customs duty on raw materials and intermediaries for all sectors covered under PLI schemes and other sectors where Bharat is looking to increase domestic production would be a big boost.

In recent times, the composition of Bharat’s export basket has also changed, with a significant increase in exports of electronic products, while the share of traditional export products such as gems and jewellery, textiles etc. has stagnated. For many exported products, the major source of raw materials continues to come from a number of countries, including China, Vietnam and Taiwan. There is a need to harmonise customs duties on essential inputs that cannot be offset in any way. This is one of the key steps to make export prices more competitive and could form the basis for a game-changing strategy to increase our export market share for identified products where we have both the manufacturing capacity and the presence in overseas markets.

In recent times, there has been a clear preference for bilateral Free Trade Agreements over multilateral trade treaties, and several Free Trade Agreements have been signed with many more at various stages of negotiation. Since these Free Trade Agreements will invariably have customs duty exemptions/concessions for identified products for a longer period, it is essential to take into account the FTAs in force and those expected in the short term, while making changes to customs duties in the Union budget, so that affected businesses are not faced with unintended difficulties.

Businesses are expecting significant changes in GST and customs duties given the favourable economic situation. is in the situation and hopes that these changes can help accelerate the movement towards Viksit Bharat before 2047.

(MS Mani is a partner at Deloitte India.)

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