As the second Modi government prepares to present its first Budget Friday, the Army has asked the Ministry of Defence to factor in taxes on arms and equipment imports, as well as its expenses on salaries and pensions before presenting its demands to the finance ministry which will decide the outlay. The Army has told the ministry that these expenses eat into its budget outlay, shrinking the corpus to procure arms and equipment crucial to modernisation efforts and maintaining existing assets, sources told ThePrint. All the three services have to currently pay customs duty as well as GST on defense imports. While the landmark tax reform, introduced in July 2017, subsumed several taxes, it doesn’t cover basic customs duty. According to the sources, the Army has argued that the additional integrated GST (IGST, applicable on inter-state purchases and imports/exports) component has further affected its procurement budgets. An Army officer told ThePrint that GST comprised about 12 percent of the force’s capital budget (for purchases), totaling around Rs 7,000 crore-8,000 crore annually.
The defense ministry, they said, had also been asked to factor in the expenses borne by the Army on initiatives such as the Ex-servicemen Contributory Health Scheme (ECHS), which was launched in 2003 for all three services and is estimated to run up a tab of Rs 5,000 crore this year alone. “The Army has sought the ministry’s attention to these aspects. A lot of the defense budget for revenue and capital outlay goes into the extra taxes and in the ECHS, leaving the forces with little money for fresh acquisitions and maintenance,” a top Army official told ThePrint. “Even the ECHS turns out to be a huge amount considering the number of officers, who also come through the short service commission,” the official added. The defense budget is categorised under four heads defense pensions, capital outlay (for arms and other acquisitions), revenue (for salaries and schemes like the ECHS), and miscellaneous (including administrative expenses). Sources said that the finance ministry could either give the Army an exemption, a rate reduction or refund on the two different taxes being paid, or just put these expenses under a separate head.
Read More at: https://theprint.in/defence/funds-shrinking-army-wants-budget-2019-to-make-special-allowance-for-gst-customs-duties/257608/