JUNE 17, 2009

A boost to real estate sector and exports may do a world of good to feel-good-factor in economy!

By Padmaja Nair

LOT has been written and discussed about the challenges before the new government and the way the ensuing Budget should address the immediate concerns of putting the economy in shape. The stability of the new government is a big plus, but how its thinktank addresses amongst other critical issues the concerns of a continuously sliding export numbers with growth also showing a definite fall compared to the last few years, would for me be one of the stand-out features of this Budget.

Terms such as ‘fiscal prudence', ‘PSU disinvestment' ‘economic growth momentum' etc will definitely be in news in the next month and more. So, for this piece, I prefer to shy away from the same and discuss a few ‘expectations' that could be of interest for trade at large – Probably most of the issues are generic and no rocket science:

++ Like our enigmatic Stock Market, interest in Real Estate/housing is perceived as one indicator of the pace at which the economy is moving. Given that a positive momentum in the field would mean increased demand for various other manufacturing sectors involved in backward integration thereof, it would do a world of good if the said industry gets a waiver from service tax (construction of residential complexes) and other indirect tax incentives such as reduced stamp duty rates, pan India.

++ Reversing the trend in exports would be a major achievement for the UPA government. We already had Mr. Maran talk about extending tax holidays for EOU/STPI on the day of election results. Tax exemption on export income would need to be brought back to help exporters reeling under the present scenario. DEPB (with increased percentage benefit for exports) may continue to see another fresh lease of life by way of an extension. The ambit of Focus Product Scheme and Focus Market Scheme could be broadened from a beneficiary aspect.

++ Power is another area of concern for the nation at large. Increased duty benefits (both import and manufacturing) for solar energy projects are the need of the hour. Further, tax holiday for generation and distribution of power due to have its sunset next year could be considered for extension.

++ Pharma industries, cotton textile industries etc have huge unutilized cenvat credit lying in their books which is not an asset in any way for them as the same cannot be encashed. Our FM may consider addressing this issue as providing of refund of the same would come as a huge relief to the cash strapped manufacturing sectors.

Other suggestions from indirect tax perspective:

a) Exemption to products used in the manufacture of exempted goods – this could benefit the manufacturers of exempted goods for whom the input taxes are now a ‘cost.'

b) Amend rule 10A of the Central Excise valuation Rules back to the principles laid down by Supreme Court in Ujjagar Prints – job work could be back in vogue.

c) Reduction in central excise duty on molasses – Pertinent to bring down cost of production of ethanol to benefit the programme of 10% blending of ethanol with petrol.

d) Permit availment of Cenvat credit on HSD/LDO – not much sense made in denying credit given that we could be moving towards a more holistic VATable regime in GST.

e) The sun set clause for setting up new manufacturing facilities in North Eastern states, Jammu and Kashmir , Kutch etc be extended and the said benefits revived.

f) Credit of additional duty of customs should be allowed to a service provider also whereas the same is presently available only to a manufacturer.

g) Exposure to double taxation (both VAT and service tax) on services such as Information technology software service , supply of tangible goods for use – Need for absolute clarity and specific clause to do away with double taxation.

h) Refund of Special Additional Duty (SAD) of customs – Given the SAD story of SAD refunds, back to exemption from said customs duty could be the best alternative.

The list could go on… but I am sure that articles from illustrious tax experts in this Budget Run up Column would carry it all and more.

Before parting: I had highlighted one issue in this column last year - the need for clarification on export of services. The last Budget did not carry it but we have it now in the form of a Circular. A very beneficial and apt one ... But, if Board is reading this piece, may be informed that your field level officers feel that the said Circular is a piece of paper... they continue to issue demand notices and make mockery of the said Circular – the height of this is that it happens even during personal hearings where absolute disregard to the said Circular is demonstrated– I have been privy to demand notices and adjudication orders, after issuance of the said Circular clearly undermining the effort made by the Board to clarify the position on export of services. And to think of it, the Circular actually directs the field officers in as many words that pending issues be sorted out according to the said Circular. Before someone files a RTI to find out how many pending issues ended in demand notices after issuance of the said Circular, can the Board do an in house home work? TIOL (after the Ratan Metal judgment) had raised apprehensions as to whether the Circular industry would move towards extinction now?? I suggest otherwise – Either Board ensures (with a cracking whip) that officers who do not respect the Circular and abide by its principles are paid to pay for their high handedness, else give a decent burial to these Circulars. If any provision for official burial of these circulars is required… well the coming Budget could well be one hell of an opportunity.