Budget May Revamp Customs Law, Address Inverted Duty: Deloitte

Speaking with ANI, Roy noted, "You would recall that the Finance Minister had made a statement that she wants to re-look at the customs law. Customs has remained largely the way it is, while income tax, service tax, excise and now GST have all been revamped."

She noted that customs is one of the few indirect tax areas that has not undergone a comprehensive overhaul, unlike income tax, excise or the Goods and Services Tax (GST).

"There are many provisions and multiple rates in customs, so there is an expectation that there may be some announcements on customs rates specifically, and possibly a larger attempt at revamping the law, if not immediately, then subsequently, she said.

Roy added that rationalising customs duty rates by reducing the number of slabs could help support domestic manufacturing and exports.

Highlighting another key concern, Roy expressed hope that the Budget would address inverted duty structures affecting several sectors, particularly pharmaceuticals and agriculture.

"In these sectors, outputs are taxed at a lower rate while inputs are taxed at a higher rate. This increases costs and negates the benefit of a lower output tax rate," she said. "I am hoping the Budget is able to address this issue, and if not the Budget, then at least soon."

On GST, Roy said the Union Budget is relatively less significant, as most policy decisions are taken by the GST Council, which meets regularly. However, she noted that some recent GST Council decisions would require legislative amendments, which could be implemented through the Budget. "There were decisions on intermediary services and on wholesale discounts. These require changes in the law, so I expect those provisions to be amended at the time of the Budget," Roy said.

Roy also ruled out any immediate further GST rate rationalisation. "We have just recently had rate rationalisation in September. Most goods are now in the 5 per cent and 18 per cent slabs. There is also a higher rate of around 40 per cent for luxury or sin products," she said. "Five per cent is essential for essential goods, 18 per cent for non-essential goods, so I do not expect further rate rationalisation at this point."

On GST compliance and litigation, Roy pointed to persistent challenges around registration, dispute resolution and cash flow. She said delays in setting up GST tribunals continue to affect litigation management, despite progress in policy intent.

"Registration has been a challenge, though some measures have been introduced. At the same time, authorities need to guard against fraudulent invoices and taxpayers," she said.

Roy also flagged frequent reconciliation-based notices and restrictions on input tax credit as areas needing reform. "Refunds on capital goods are not allowed for exporters, and GST under reverse charge has to be paid in cash. Allowing credit for these would significantly help taxpayers' cash flows," she said.

- ANI