Tax collection is consistently on the dip and the Govt is spending more than what it earns; yes, that’s how it is also in a routine year but this year, the Corona has made the deficit look like a gaping huge black hole.
We all knew that the Govt will try and do everything to increase its revenues and will come with stringent actions and creative ways to get more from taxes.
Well, here is the first one. There is news that the Govt is looking at imposing Border Adjustment Tax or BAT as it is known in the taxation parlance. There was talk on this a couple of years ago but with India on an Atmanirbhar path, what better time that now to bring about this BAT.
BAT is not something like a toll we need to pay every time we cross the country’s border; its more about paying tax on the goods which cross the border and come into India.
It’s pretty simple – you pay tax for everything which is imported into India and nothing on goods exported out of the country. So, you pay tax on goods based on “where” it is consumed, irrespective of where the company is based or from where the product originates as long as it comes from across the borders of India.
BAT was first proposed by the NITI Aayog three years ago and looks like it might actually see the light of the day. BAT will be over and above the customs or import duty levied at the port of entry.
Obviously, the idea is to reduce import dependence from countries where India has a free trade agreement and create a level playing field for the domestic industry. This is supposedly being done at the behest and persistent request of the Indian steel industry.
As per the WTO, BAT can be levied by countries as long as the BAT does not exceed the corresponding indirect taxes imposed on the domestic producers. There is infact also thought on refunding taxes not subsumed by GST to domestic manufacturers. We already have something known as Remission of Duties and Taxes on Exported Products ( RoDTEP), under which all levies paid on inputs used to create a product for exports are refunded. But the RoDTEP does not cover goods sold in the domestic market giving them a price advantage over domestic goods. Thus BAT aims to fill in this gap.
Increased revenue collection, promote Atmanirbhar and reduce imports, creating level playing field for domestic industry – these in short are the reasons listed for bringing in BAT. But the question – will it really do all this?
Globally, when BAT is levied it will be looked upon as a “protectionist” tax and other countries are bound to react. Countries having large exports to India, will automatically, to maintain their market share, reduce the price of its product and that in itself might negate the objective of BAT – a reduced price by exporting country might make the import cheaper than domestic product despite BAT.
More importantly, BAT will be inflationary; right from the TV and almost every single white good we buy, BAT in some form or the other will be imposed – either on the finished product or for inputs used for making it in India. And obviously, any tax, will always be passed on to the consumer. Maybe over a period of time, it will all get balanced out but in the short term it will bring lots of pain.
BAT or no BAT, what we know for sure is that Govt desperately needs to increase its revenues and taxes will be one of the avenues….and you thought dealing with the pandemic was the only problem?