Will Budget 2016 help India move closer to GST?

Rohan Shah, Managing Partner, ELP; Sachin Menon, Partner & Head, Indirect Tax, KPMG and Harishanker Subramaniam, Partner and Indirect Tax Leader of EY, talk about the tax-related worries and needful for the Budget 2016.

Will Budget 2016 herald the big indirect tax reset and exemptions? Will it help India move closer to Goods and Services Tax (GST)? Does that mean a change in some tax thresholds and rates?

In CNBC-TV18’s special series, ‘Pre-Budget Tax’, three indirect tax experts — Rohan Shah, Managing Partner, ELP; Sachin Menon, Partner & Head, Indirect Tax, KPMG and Harishanker Subramaniam, Partner & Indirect Tax Leader of EY — answer them all.

Below is the transcript of Rohan Shah, Sachin Menon and Harishanker Subramaniam’s interview with CNBC-TV18’s Menaka Doshi.

Doshi:I would like to start by talking a little bit about the indirect tax collections we have seen in the fiscal so far and in fact the projected collection for the fiscal was Rs 6.5 lakh crore, but we have the finance ministry tell us they are going to do better than that, thanks to the big mop up on the excise duty front on oil. So, about Rs 40,000 crore extra. What do you make of where we are in those targets and what kind of targets do you expect in the year to come?

Shah: Obviously that is a good sign and to me the most important sign there is not the numbers but the factor that the moment you have higher indirect tax contributions there is something robust happening in the economy.

Doshi: But these are higher because of the excise duty on fuel otherwise they wouldn’t be?

Shah: Yes, but you are not seeing it sort of falling off. There is an impact in petroleum and fuel. But you are seeing other parts of the economy also kick in and contribute because if they weren’t you wouldn’t have had some shortfalls. So, from my perspective you are seeing whether it is all of the announcements or whether it is just the buoyancy. The fact that industry is working, the economy is working is part of the reason that you are sort of going to get to this. Going into the next year this is a year of transition. I don’t know what sort of numbers they will set but clearly both for direct and indirect tax it is a year of transition and from that perspective if they have to ultimately move to GST and then to move to the corporate rates they want they will have to be a little more measures in their ambition for tax because in a transition things will in that manner be a little more uncertain and they should factor that in.

Doshi: What kind of target we should be looking out for in the Budget speech for indirect tax given that we are also intending to move to GST this year hopefully?

Subramaniam: The buoyancy that we saw this year I don’t think is going to be there to that extent next year and also you correctly spoke about the extra Rs 40,000 crore that they raised on excise as far as those petroleum goods are concerned. While there will be some degree of improvement but I don’t think the numbers in my view will be more than 15-16 percent growth and all because unless they do some rate increase or rate tinkering which is also expected. So, fundamentally they need to be a little bit more cautious on those number for next year because this amount of buoyancy that they had this year after a long time we will be meeting Budget revised estimates. They need to be careful but the challenge that they have is they also will have a difficult fiscal deficit to manage next year onwards. So, it is going to be interesting to see what is the growth numbers on indirect tax.

Doshi: So, do you have a number? This year’s projected collections were Rs 6.5 lakh crore. Should we expect a 10-15 percent extra when they put down the number for next fiscal? Subramaniam: In my view they will definitely do 15 percent plus because they are not going to meet the fisc next year at 3.5 percent with all the pay commission, one rank-one pension (OROP), food security and bank capitalisation. So, they will have a number of 15 and upwards. That is where they need to be cautious.

Doshi: So, if we are looking at a 15 percent sort of increased target for the next fiscal if you agree with that then what does this mean for how we progress rates in this Budget towards the GST rates assuming that what the Chief Economic Advisor said about the standard rate being somewhere at 18 percent is what finally happens? Menon: This brings us to the old debate to say that when the economy is predicted to grow by 7-8 percent you expect a tax growth of 15 or 20 percent or even more for that matter.

Doshi: So, you are saying 15 or 20 percent would be unrealistic unless they increase the rates?

Menon: So, it all depend upon how best you have got the arms around the current tax structure and the compliance mechanism. So, if you look at the buoyancy in the revenue which we are seeing now one is contributing towards petroleum and you also should not forget that last year the service tax rate had gone up from 12-14.5 percent. And it is expected that this year that rate will further go up to 16 percent which is contributing 1.5 percent more. That definitely go in to increase the tax collection given the fact that from the GDP the contribution from service sector is almost 60 percent. So, therefore the revenue growth is not only contributing because of better compliance but also tax rate increase. 



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