Skip to main content

Contract Mfg Yet to Reap Benefit of Budget Perk

By
Update of Cenvat credit to allow manufacturers to transfer tax credit to an outsourced unit stuck due to definition issue
An ambiguity in drafting has prevented companies that rely on outsourcing from getting the benefit of a key change announced in this year's budget. This was aimed at providing credit for taxes paid even if work was outsourced. The government did not carry out complementary changes to the definition of `input service', which has led to some being denied the advantage of the provision, a precursor to the goods and services tax regime.
A number of pharmaceutical companies, soft drink makers, fastmoving consumer goods compani es and garment makers outsource all their work to workers or contract manufacturers. The budget proposal was seen as a big impetus to contract manufacturing.
In the budget, the government proposed an amendment in the Cenvat (central value added tax) credit provisions to allow manufacturers or service providers to transfer tax credit to an outsourced unit, partially or fully. This was seen as encouraging outsourcing as companies can pass on accumulated tax credits.
The proposal has got stuck over the definition issue.
Industry has asked the government to resolve the matter when the finance bill is passed in the second half of the budget session that begins April 25.
Incidentally, companies that rely fully on outsourced manufacturing are the ones affected. Those that outsource and manufacture partially don't face any issue.
Tax experts said further streamlining of the provision is required.
“The new provision to allow transfer of credit to a job worker or contract manufacturer will reduce the cascading of taxes where some part of manufacturing is outsourced,“ said Bipin Sapra, partner, EY.“However, in case the entire manufacturing is outsourced, the credits on brand promotion etc. will not be available to the contractee.“
Sapra said a further concession in this regard will fully streamline the availability of credit in the case of contract manufacturing and incentivise such activity.
The government will need to tweak the definition of input services to include those that are covered. A small change is needed to say those that outsource or transfer manufacturing activity are also included in the definition of input service distributor. The piling up of Cenvat credit, in lieu of tax paid on inputs, to set off tax liabilities has been a longstanding issue for industry. The government had in this year's budget tried to address the issue, bringing relief to industry.
The Economic Times New Delhi,18th April 2016

Comments

Post a Comment

Popular posts from this blog

Govt’s gamble on GST cuts: What do the bond and currency markets signal?

By
  It’s not just humans who suffer from cognitive biases; markets do too. Interestingly, different financial markets exhibit distinct biases, each interpreting events through its own prism of prejudice. Take the recent announcements on GST reforms: equity markets have chosen to view them through the lens of growth, while bond and currency markets are focusing on potential macroeconomic risks—fiscal pressures and current account challenges. So, which lens captures the true pulse?Equity markets may be right in expecting GST reforms to revive consumption, which has remained lacklustre for a while. But the key question remains—will this revival come at the cost of broader macro stability?It is well known that consumption stocks have rallied since the GST rationalisation announcement. But what about bond markets? What signals are they sending since this rejig was announced from the ramparts of the Red Fort?The signs aren't encouraging. Bond prices have slumped and yields have surged sinc...
Post a Comment
Read more

Luxury carmakers urge clarity on GST rates to boost festive season sales

By
  A clear picture regarding new GST rates at the earliest will help the overall auto industry, including the luxury car segment, to regain momentum in the ongoing quarter, which generally sees enhanced sales on account of the festive season.The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on September 3-4 to discuss moving to a two-slab taxation.In an interaction with PTI, BMW Group India President and CEO Hardeep Singh Brar said the recent speculation about the change in GST rates has caused uncertainty in the minds of consumers.Consumer interest and demand is strong, but they (prospective buyers) have adopted a wait-and-watch approach, and this delayed decision-making is impacting new vehicle sales at a certain level, he noted."Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar stated.He also hoped that the sustainable p...
Post a Comment
Read more

Sebi proposes tighter norms for green bond third-party reviewers

By
  Sebi on Friday said it has proposed to tighten the norms to appoint independent third-party reviewers or certifiers for green debt securities to align them with requirements for other ESG-linked bonds.In a draft circular, Sebi said that the current norms for green bonds, introduced in February 2023, lack detailed requirements around reviewer independence, conflict of interest mitigation, and disclosure standards that are now in place for other ESG-linked securities under a June 2025 circular.The regulator's latest proposal seeks public comments on a revised framework that would bring parity by incorporating comprehensive criteria for third-party certifiers of green bonds on non-convertible securities.Under the proposed norms, issuers of green debt securities will need to appoint reviewers who are independent of their management, directors, and key managerial personnel. These reviewers will be remunerated in a way that prevents any conflicts of interest and possess relevant expert...
Post a Comment
Read more