By Pratha Khanna
Abstract
India, being a developing country, engulfs an ever-growing economy which requires constant changes through the means of amendments to tax proposals, formulation of the government budget etc. To achieve the targets set forth by each government and to calculate the gross expenditure on each governmental department, the finance minister proposes a Finance Bill each year in the month of February. The Finance Bill is a critical piece of document which proposes changes to the tax rates, duties etc. via the means of a legislative bill. The 2023-2024 Finance Bill was proposed on 1st February, 2023 at the Parliament by our Union Finance Minister, Nirmala Sitharaman this year. The Finance Bill aims at achieving a “saptarishi” framework which includes empowering green growth, infrastructure and investment, inclusive development, youth power, financial sector, unleashing the potential and reaching the last mile. Each amendment as proposed by the bill was made in order to reach these inclusive targets so as to grow the Real GDP to a level of 7% along with expanding other growth indicators. Taxes form as the number one source for any government to acquire revenue to invest the same on public commodities such as infrastructure, agriculture etc. This year’s bill brought in various crucial changes in terms of direct as well as indirect taxes.
DIRECT TAX PROPOSALS IN THE FINANCE BILL, 2023
To give a brief understanding, the direct tax code in India is the Income Tax Act which essentially is a rate of taxation on an individual’s income. This income ranges from the broad five categories such as income from salary, income from capital gain, income from house property, profits and gains from business and profession and income from other sources. Changes in the direct tax code range from increasing the rebate slab, amendments in the new regime with respect to tax rates and delivering a standard deduction of Rs. 50,000. Other changes include relief for salaried individuals, retirement benefits etc. These proposed amendments are being taken as a positive change to the income tax regime wherein individuals are now allowed to claim a standard deduction of a certain amount along with getting a rebate for an income up to Rs. 7 Lakh.
POSITIVE INDIRECT TAX PROPOSALS IN THE FINANCE BILL, 2023
Chapter IV of the Finance Bill, 2023 specifically focuses on Indirect Tax proposals which forms the basis of the critique formulated in this analysis. These amendments were specifically brought in place, in order to improve tax administration along with providing a simpler tax structure for the consumers as well as the traders. By simplifying the tax structure, the government, through this budget, intends to promote the adoption of Goods and Services Tax throughout the country in an easier and convenient manner. The main motive of introducing GST in the Indirect Tax Model of India was to avoid cascading and instances of double taxation. Moreover, GST has brought in greater clarity and certainty in the system by merging various taxes into one simple code. The Indirect Tax proposals made in the budget primarily focus on changes in custom duties and tax rates for certain goods such as electronic goods, chemicals and pharmaceutical goods and other green mobility sector-oriented goods such as compressed biogas. An important amendment partaken by the Finance Bill is to increase the minimum tax amount required for launching prosecution from Rs. 1 Crore to Rs. 2 Crore. This change was highly needed as in recent times, the launching of prosecution has become extremely frequent which not only results in a huge influx of cases in the judiciary but also a heavy penalization which lowers the morale of traders. The amendments proposed also decriminalizes certain clauses from within the Act such as tampering of evidence, obstructing an officer from discharging their duties etc. It is pertinent to note here that even though such acts may be removed from the radar of heavy prosecution, there still needs to be a correct form of checks and balances on the traders so as to avoid any misuse of these decriminalization mechanisms. Another positive change brought in by the budget was to include unregistered vendors and composite taxpayers in transacting through e-commerce operators within the state. This amendment would enhance the number of players in the market thereby giving more opportunity to buyers and promoting healthy competition for local players as well. The Budget further expands the definition of Online Information Database Access and Retrieval services (“OIDAR”) to also include human intervention within its scope thereby eliminating a number of disputes that had arisen due to the ambiguity in terms of whether or not a certain service includes a “human” element. All of these changes can be considered to have a positive impact on the overall market for goods and services wherein inclusivity has been brought in play by reduction of tax rates and custom duties, further a healthy competition has been brought in order to achieve a holistic market and lastly, the focus has been retained at having a simplified tax structure that aligns with the overall motive of bringing in GST which was to have “one tax” model.
NEGATIVE/ MISSING PROPOSALS IN THE FINANCE BILL, 2023
However, there are certain drawbacks of the Finance Bill, 2023 wherein certain changes have been brought which might find itself difficult to root themselves in the market. One such change is the elimination of Input Tax Credit for CSR activities undertaken by any company. CSR being a statutory requirement, it merits the granting of an ITC so as to ensure that each company fully utilizes its potential in terms of its social responsibility. By eliminating the provision of ITC for CSR activities, the government has opened a diverse ground for foul play wherein any company can achieve the 2% requirement without actually investing in the society. This could go immensely against the provisions of the CSR requirement and the intent of the same would be demolished if companies start deviating from the actual motive envisaged by the government in the form of CSR mandates. On one hand, the inclusion of local vendors seems like a positive outcome of the Finance Bill, 2023 however, on the other hand, an amendment to Section 122 of the CGST Act, envisages a certain situation wherein any offense committed by these unregistered persons would be charged at the e-commerce player under whom the vendor was operating. From a statutory standpoint, this provision would eliminate foul play and limit the number of offenses on an online platform which would further reduce the number of scams and frauds as a whole. However, from an operator standpoint, such a provision increases the burden on an ecommerce provider along with increasing their cost of compliance which may limit various vendors from joining such operators “real time”. An important aspect which seems to be missing from the Finance Bill, 2023 is the inclusion of a Customs Dispute Settlement Mechanism which is an extremely critical amendment that requires enough deliberation on the part of the ministry. A quick dispute settlement mechanism would reduce the burden on courts, help in efficient and faster disposal of custom disputes and increase certainty by way of precedential value within the market. The Finance Bill has also given no recommendation in terms of the much-needed Special Economic Zone Law (hereinafter referred to as “SEZ Law”). This new SEZ Law is extremely critical for India especially with new and a larger number of areas being given the SEZ tag. This new SEZ law is also required to clear the ambiguity with regards to whether the transfer of goods from an SEZ area to a region would be an IGST issue or a SGST issue. Furthermore, an essential aspect that was missed in the Finance Bill, 2023 was the formulation of a GST Appellate Tribunal which if brought in place could have successfully helped in resolving major disputes in the initial stage and help in the reduction of cases that have arisen due to the mere ambiguity in the GST Law by way of it being an extremely new act. With the 2 Pillar OECD Model coming into play in 2023, the Finance Bill 2023 also did not inculcate any changes with respect to international taxation such as adoption of certain MLI’s or changes in terms of equalization levy etc.
INCLUSION OF RECOMMENDATIONS GIVEN BY THE GST COUNCIL
The GST Council serves as an advisory committee in terms of bringing about changes within the GST Acts. The 48th GST Council Meeting was held in December 2022 which discussed various amendments to the acts as well as the rules along with the discussion on various issues within the statutes. On the basis of such recommendations, the Finance Bill is pronounced and it is pertinent to check whether the same have been incorporated in the bill or not. In this meeting, the GST Council gave certain recommendations in relation to removal of ITC for CSR activities, amendment to the definition of OIDAR Services and decriminalization procedures etc. which were taken forth by the finance minister in the bill. However, the recommendations made by the council in this meeting also included provisions for inclusion of Aadhar and other biometric systems for the purpose of registration of taxpayers which finds no mention in the Finance Bill, 2023. Further, the recommendations included certain amendments to proposals under the CGST Act with regards to collection of Tax Collected at Source which was also not included in the Finance Bill, 2023.
In conclusion, it is clear that the Finance Bill, 2023 did pave the way for necessary changes within the Indirect Tax Regime which in turn are likely to make the tax collection more easy, simple and fault free. However, on the flip side, the bill has failed to mention and take into account certain important loopholes of the law and have not rectified the same despite the recommendations made by the GST Council in their 48th Meeting. A critical analysis of the entire Finance Bill as described above indicates the inclusion as deliberated by the Indian government but it also shows the lack of thoughtfulness shown by the government by failing to bring a wide range of amendments and changes which are crucial in this age and time.
About the Author
Pratha Khanna, is a fourth-year law student at Jindal Global Law School with keen interest in the field of taxation. She is currently a part of the Economics & Finance Cluster of Nickeled and Dimed under the Centre for New Economic Studies.
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