New Delhi: Finance minister Pranab Mukherjee on Tuesday extended tax concessions to companies, particularly in the automobiles sector, and rolled back the introduction of service tax on hospitals as part of the final package of changes to his February Union budget proposals.
The changes were introduced in the finance Bill before it was cleared by the Lok Sabha on Tuesday through a voice vote.
Among the key tax concessions introduced were an extension of direct tax benefits to Indian companies that receive dividends from subsidiaries or joint ventures abroad and a reduction in customs duty to 30%, from 60%, on car makers who import pre-assembled engines, transmissions and gear boxes in the form of completely knocked-down (CKD) kits.
Concessions in taxes were supplemented by changes in procedures in indirect taxes to make compliance easier for companies, and reduce the possibility of disputes between them and tax authorities.
The auto industry was not clear about the implications of the reduction in customs duty on CKDs.
“Apart from the duty reduction, we had also asked to change the definition of CKD. So, if that hasn’t been changed, then not all the issues have been addressed and despite reduction, there is twofold increase in duty,” said Sugato Sen, senior director at Society of Indian Automobile Manufacturers, the auto industry body. “We don’t know what is there in the notification.”
Mint on 3 March reported that the new norm would not only affect plans of luxury car makers, but also local companies such as Mahindra and Mahindra Ltd and Tata Motors Ltd that sell, or are planning to sell products made by the companies they have acquired overseas. In the mass segment, Hyundai Motor India Ltd may face higher tariffs on some vehicles as it imports all its diesel engines.
The Union budget had proposed that dividends received by Indian companies from their overseas subsidiaries (in which they hold at least 50%) would be taxed at 15%, half the current rate.
On Tuesday, Mukherjee extended the benefit to Indian companies with joint ventures abroad, where their holding is at least 26% in the overseas company.
Indirect tax concessions were extended to parts of the technology sector, including some areas relating to personal computers.
Mukherjee did not disclose the loss in revenue on account of the tax concessions made on Tuesday.
One area where the minister offered a concession reluctantly was in the healthcare sector. The February budget brought larger hospitals and diagnostic centres within the ambit of service tax, a move which generated controversy and was dubbed a “misery tax” by some stakeholders in the healthcare sector.
Mukherjee announced he would roll back the controversial levy of an effective service tax of 5% on larger hospitals and diagnostic centres. However, the services would be brought into the tax net with the introduction of the goods and services tax, he said.
“Half-measures in these reforms, by insisting on concessions and exemptions will only add to the complexity and distortions of the tax regime, which will compromise the intended benefits from these measures,” Mukherjee said.