Cheap Textile Imports May Get Curbed, While PTA Will Be More Easily Available
Union Budget 2020 proposals focus mainly on streamlining the financial sector, strengthening the MSME sector, easing and simplifying of GST system, infrastructure development, and technological advancement.
A quick analysis of the budget proposals for the textile industry:
India imports significant quantity of technical textiles worth US$ 16 billion every year. To reverse this trend and to position India as a global leader in technical textiles, a National Technical Textiles Mission is proposed with a four-year implementation period from 2020-21 to 2023-24 at an estimated outlay of Rs 1480 crore.
The government proposes to develop 2500 Km access control highways, 9000 Km of economic corridors, 2000 Km of coastal and land port roads and 2000 Km of strategic highways.
Delhi-Mumbai Expressway and two other packages would be completed by 2023 . Chennai-Bengaluru Expressway would also be started. This, while improving connectivity across the country, also opens up opportunities for geotextile applications.
Improving consumer spending
The FM has proposed a simplification of the income tax regime, by reducing the effective rate of income tax. This will increase disposable income, in turn spurring consumer spending.
Ease of Doing Business
- It is proposed to set up an Investment Clearance Cell that will provide “end to end” facilitation and support, including pre-investment advisory, information related to land banks and facilitate clearances at Centre and State level. It will work through a portal.
- To achieve higher export credit disbursement, a new scheme, NIRVIK is being launched, which provides for higher insurance coverage, reduction in premium for small exporters and simplified procedure for claim settlements.
- It is proposed to digitally refund to exporters, duties and taxes levied at the Central, State and local levels, such as electricity duties and VAT on fuel used for transportation, which are not getting exempted or refunded under any other existing mechanism. This scheme for reversion of duties and taxes on exported products will be launched this year.
- In order to increase the attractiveness of the Indian Equity Market and to provide relief to a large class of investors, the finance minister has proposed to remove the DDT and adopt the classical system of dividend taxation under which the companies would not be required to pay DDT. The dividend shall be taxed only in the hands of the recipients at their applicable rate.
Simplifying GST system
- It is decided to transfer to the GST Compensation Fund balances due out of collection of the years 2016-17 and 2017-18, in two instalments. Hereinafter, transfers to the fund would be limited only to collection by way of GST compensation cess.
- A simplified GST return shall be implemented from 1st April, 2020. This is under pilot run. It will make return filing simple with features like SMS based filing for nil return, return pre-filling, improved input tax credit flow and overall simplification.
Streamlining customs duties and procedures
- The finance minister observed that imports under Free Trade Agreements (FTAs) are on the rise. Undue claims of FTA benefits have posed threat to domestic industry. Suitable provisions are being incorporated in the Customs Act. “In the coming months we shall review Rules of Origin requirements, particularly for certain sensitive items, so as ensure that FTAs are aligned to the conscious direction of our policy,” the FM said in her speech.
- The FM proposed to strengthen provisions relating to safeguard duties which are applied when surge in imports causes serious injury to domestic industry. Amended provisions will enable regulating such surge in imports in a systematic way. The provisions for checking dumping of goods and imports of subsidised goods are also being strengthened for ensuring a level playing field for domestic industry. These changes are in line with international best practices.
- Labour intensive sectors in MSME are critical for employment generation. Cheap and low-quality imports are an impediment to their growth. Special attention has been taken to put measured restraint on import of those items which are being produced by our MSMEs with better quality. Keeping in view the need of this sector, customs duty has been raised on items like footwear and furniture.
- Chemicals are crucial feed stocks for downstream users. PTA, for example, is a critical input for textile fibres and yarns. Its easy availability at competitive prices is desirable to unlock immense potential in the textile sector which is a significant employment generator. “Therefore, in the larger public interest, anti-dumping duty on PTA is being abolished,” the FM announced.
Manufacturing and export excellence
“From the Red Fort, our Prime Minister spoke about quality and standards when he spoke of “Zero Defect-Zero Effect” manufacturing. In September last year, I had called for a time-bound adoption by industry of all necessary, mandatory technical standards and their effective enforcement. All Ministries, during the course of this year, would be issuing quality standard orders,” announced the FM.
Further, in keeping with the Prime Minister’s vision that each district should develop as an export hub, efforts of the Centre and state governments are being synergised and institutional mechanisms are being created.
The finance ministry has estimated a 10% nominal growth of GDP for the year 2020-21.
Direct Tax Proposals
Tax Incentives: Relief in personal income-tax and simplification of taxation
|Total Income (Rs)||Rate (%)|
|From 2,50,001 to 5,00,000||5|
|From 5,00,001 to 7,50,000||10|
|From 7,50,001 to 10,00,000||15|
|From 10,00,001 to 12,50,000||20|
|From 12,50,001 to 15,00,000||25|
Removal of Dividend Distribution Tax
Incentives to start-up:
- In order to encourage the start-ups to employ highly talented employees at a relatively low salary by granting them Employee Stock Option Plan (ESOPs), it is proposed to defer the tax payment on these ESOPs granted by start-up to their employees by five years or till the employee leaves the company or when the said employee sells those shares, whichever is earliest.
- Further, in order to extend benefit of tax holiday to larger start-ups, it is proposed to increase the turnover threshold for claiming tax holiday from existing Rs 25 crore to Rs 100 crores. Further, in order to address the concerns of start-ups which may not have adequate profit in initial years for availing this holiday, it is proposed to extend the period of eligibility for claim of 100% deduction from the existing 7 years to 10 years.
Reduction in rate of Tax Deduction at Source (TDS): In order to reduce litigation, the FM proposes to reduce rate for TDS in case of fees for technical services (other than professional services) to 2% from existing 10% in order to align the same with the rate of TDS on works contract.
TDS on e-commerce transactions: In order to widen and deepen the tax net, it is proposed to provide that e-commerce operator shall deduct TDS on all payments or credits to e-commerce participants at the rate of 1% in PAN/Aadhaar cases and 5% in non-PAN/Aadhaar cases. In order to provide relief to small businessman, it is proposed to provide exemption to an individual and HUF who receives less than Rs 5 lakh and furnishes PAN/Aadhaar.
Raising of limit for tax audit: In order to help small and medium enterprises, it is proposed to raise the turnover threshold for compulsory tax audit from existing Rs 1 crore to Rs 5 crore in a case where cash receipt is not more than 5% of total receipt and cash payment is not more than 5% of total payment. Further, in order to reduce the compliance cost, it is also proposed to provide that tax audit report to be filed a month before the due date of filing income tax return. Accordingly, the said due date for filing of income tax returns is proposed to be changed from 30th September to 31st October of the relevant assessment year so that there is no change in the date of finalisation of tax audit.
The FM will amend the definition of “work” for the purpose of TDS under section 194C to provide that in a contract manufacturing, the raw material provided by the assessee or its associate shall fall within the purview of the ‘work’ under section 194C.
Indirect Tax Proposals:
|A||For improving compliance|
|1.||A new Chapter VAA (a new section 28DA) is being incorporated in the Customs Act to provide enabling provision for administering the preferential tariff treatment regime under Trade Agreements. The proposed new section seeks to specifically provide for certain obligations on importer and prescribe for time bound verification from exporting country in case of doubt. Pending verification preferential tariff treatment shall be suspended and goods shall be cleared only on furnishing security equal to differential duty. In certain cases, the preferential tariff treatment may be denied without further verification.|
|2||A new section (section 51B) is being incorporated to provide for creation of an Electronic Duty Credit Ledger in the customs system. This will enable duty credit in lieu of duty remission to be given in respect of exports or other such benefit in electronic form for its usage, transfer etc. In this regard, enabling provisions for issuance of suitable regulations are also being inserted in section 157(2) of the Customs Act,1962.|
The provisions for recovery of duties provided under section 28AAA of Customs Act, 1962 are also being expanded to include such electronic credit of duties.
|B||Amendment in the Customs Tariff Act, 1975|
|1.||Section 8B of the Customs Tariff Act, 1975, which provided for imposition of safeguard duty as a trade remedy against surge in imports of a commodity, is being amended to make provisions for application of other safeguard measures such as Tariff Rate Quota and other safeguard measure as the Central Government may deem necessary to protect the domestic industry from injury due to significant surge in imports.|
Amendment in Countervailing Duty Rules and Anti-Dumping Duty Rules:
|1||Anti-Dumping Rules||Changes are being made in the Rules to strengthen the anti-circumvention measures by making them more comprehensive and wider in scope to take care of all types of circumventions of anti-dumping duty in line with best international practice. Certain other changes are being made in these Rules for bringing clarity in the scope of these rules.|
|2||Countervailing Duty Rules||At present, there is no provision for investigation in case of circumvention of countervailing duties. A provision is being incorporated in the Countervailing Duty Rules to enable investigation into case of circumvention of countervailing duty for enabling imposition of such duty. Certain other changes are being made for bringing clarity in the Rules.|
Changes in Customs duty for creating a level playing field for MSME and promoting MAKE IN INDIA:
- Level playing field for domestic producers:
Customs duty is being increased on the following goods:
|S. No.||Category of goods||Specific items||Rate of Duty|
b. Parts of footwear
|2||Furniture goods||Seats, articles of bedding including mattresses, lamps, lighting, illuminated signs, and other articles of furniture||20%||25%|
|3||Toys||Tricycles, scooters, scale models, dolls, etc.||20%||60%|
|Sports Goods||Willow is being included in the list of items allowed duty free import up to 3% of FOB value of sports goods exported in the preceding financial year||Applicable Rate||Nil|
Revocation of Anti-Dumping Duty on Purified Terephthalic Acid:
Revocation of Anti-dumping duty on import of Purified Terephthalic Acid originating in or exported from: –
- South Korea and Thailand imposed vide notification No. 28/2019-Customs (ADD) dated 24.7.2019
- China, Iran, Indonesia, Malaysia and Taiwan imposed vide notification No. 28/2016-Customs (ADD) dated 5.7.2016
Proposals involving change in provisions of Central Goods and Services Tax Act, 2017:
|S. No.||Amendments in the Central Goods and Services Tax Act, 2017 /Integrated Goods and Services Tax Act, 2017 / Union Territory Goods and Services Tax Act, 2017|
|1||For facilitating trade or consumer|
|Sub section (4) of the section 16 of the CGST Act is being amended to delink the date of issuance of debit note from the date of issuance of the underlying invoice for purposes of availing input tax credit.|
|Clause (c) of sub-section (1) of section 29 of the CGST Act is being amended to provide for cancellation of registration which has been obtained voluntarily under sub-section (3) of section 25.|
|A proviso to sub-section 1 of section 30 of the CGST Act is being inserted to empower the jurisdictional tax authorities to extend the date for application of revocation of cancellation of registration in deserving cases.|
|Section 51 of the CGST Act is being amended to remove the requirement of issuance of TDS certificate by the deductor; and to omit the corresponding provision of late fees for delay in issuance of TDS certificate.|
|Section 168 of the CGST Act is being amended to make provisions for enabling the jurisdictional commissioner to exercise powers under sub-section (5) of section 66 and second proviso to sub-section (1) of section 143.|
|2||For improving compliance|
|Section 10 of the CGST Act is being amended, so as to exclude from the ambit of the Composition scheme certain categories of taxable persons, engaged in making-|
(i) supply of services not leviable to tax under the CGST Act, or
(ii) inter-State outward supply of services, or
(iii) outward supply of services through an e-Commerce operator.
|Section 122 of the CGST Act is being amended by inserting a new sub-section to make the beneficiary of the transactions of passing on or availing fraudulent Input Tax Credit liable for penalty similar to the penalty leviable on the person who commits such specified offences.|
|Section 132 of the CGST Act is being amended to make the offence of fraudulent availment of input tax credit without an invoice or bill a cognizable and non-bailable offence; and to make any person who commits, or causes the commission and retains the benefit of transactions arising out of specified offences liable for punishment.|
|The definition of “Union territory” in clause (114) of section 2 of the CGST Act is being amended to update the definition of Union territory in view of the bringing into force of the Jammu and Kashmir Reorganization Act, 2019 and the Dadra and Nagar Haveli and Daman and Diu (Merger of Union Territories), Act, 2019.|
Consequential changes are also being made in UTGST Act, 2017.
|Section 31 of the CGST Act is being amended to provide enabling provision to prescribe the manner of issuance of invoices in case of supply of taxable services.|
|Section 109 of the CGST Act is being amended to bring the provision for Appellate Tribunal under the CGST Act in the Union territory of Jammu and Kashmir and Ladakh.|
|Section 140 of the CGST Act is being amended with effect from 01.07.17, to prescribe the manner and time limit for taking transitional credit.|
|Section 172 of the CGST Act is being amended to make provision for enabling issuance of removal of difficulties order for another 2 years, i.e. till five years from the date of commencement of the said Act.|
Similar changes are also being made in the IGST Act, 2017 (section 25), the UTGST Act, 2017 (section 26) and the GST (Compensation to States) Act, 2017 (section 14).
|Entries at 4(a) & 4(b) in Schedule II of the CGST Act is being amended with effect from 01.07.2017 to make provision for omission of supplies relating to transfer of business assets made without any consideration from Schedule II of the said Act.|
The proposed changes in GST laws will come into effect from the date when the same will be notified, as far as possible, concurrently with the corresponding amendments to the similar Acts passed by the States & Union territories with legislature.
Retrospective amendments to give effect to the recommendations of the GST Council:
|S. No.||Retrospective amendment in the Goods and Service Tax rate and refund provisions|
|1||Concessional 12% rate of Integrated Tax and 6% Central Tax and 6% Union Territory Tax during the period 01.07.2017 to 31.12.2018, on pulley, wheels and other parts (falling under heading 8483) and used as parts of agricultural machinery of headings 8432, 8433, and 8436. However, GST paid at any other rate (higher than 12%) shall not be refunded.|