GST and the future of taxation in India

After the blip caused by the Covid-19 pandemic, India is at the cusp of greater heights, as it hurtles towards becoming a (US) $5 trillion economy; GST is one tool available to attain this target.

It has been six years since India’s most significant tax reform, viz. GST, which was rolled out with the motto of ‘one nation, one tax, and one market’. Despite initial hiccups and glitches, the nation has truly benefitted from this overhaul – by discarding multiple taxes/levies, mitigating the cascading impact of taxes, lowering tax rates, embracing technology, widening and continually expanding the tax base, lowering the logistical time and cost, and reducing fraudulent practices and tax evasion to a great extent.

It is a well-accepted fact that India’s GST regime still has shortcomings or areas for betterment, yet none of these are unsurmountable as has been done in the past with the ‘implement and improvise’ approach. Some of the prominent aspects that deserve the attention of policymakers are discussed here.

First, there must be brought about political consensus to bring into the GST net the following commodities: petroleum crude, high speed diesel, petrol, natural gas, and aviation turbine fuel, which are still not taxed by GST. Witnessing the success of GST, it is propitious to consider the inclusion of these excluded products. This inclusion will bring about collateral effects of revenue collection, going away with multiple taxation schemes and almost wiping out the cascading impact of taxes. The net can effectively also be expanded to bring alcohol meant for human consumption within its fold. At the time, with all these products brought within the ambit of GST law, it can be proclaimed that it indeed is ‘one nation and one tax’. In the same breath, it will be opportune to consider the inclusion of other levies such as stamp duty, electricity duty, etc.

To make GST law a real Value Added Tax and eliminate the cascading impact of taxes, it is opportune to reconsider the following design and policy aspects: inclusion of services in the inverted duty structure refunds and permit set-off of taxes paid (ITC) on construction activities resulting in immovable property.

Governments and GST bureaucrats will do well to address and erase ambiguity on issues that are a conundrum. Areas that puzzle industry and departmental officers alike will welcome clarifications. Some topical issues are the applicability of GST on inter-branch services and cross-charge, secondment of employees, taxation of online gaming activities, transactions involving cryptocurrency, electric vehicle charging infrastructure, discounts, and schemes amongst others. The bureaucrats concerned with implementation of GST must be lauded for proactively taking up issues. For example, taxability of tolerating an act or situation, liquidating damages, and ushering lucidity.

Ranjeet Mahtani,
Dhruva Advisors LLP

The world is increasingly being digitalized, i.e., a digital way of being is coming up. Tax laws must keep pace and be cognizant of these developments in the scientific and commercial world. Such readiness ensures clarity and certainty in taxation and avoids disputes.

The industry expects not to be dually taxed, but rather to make sure that attempts in this direction mustn’t be allowed to occur. So, the resolution of dual jurisdictions and multiple proceedings by various department authorities should not be allowed. Taxpayers must not be subjected to any hardships, least of all due to turf wars.

The GST council – a first successful initiative of a constitutional body of this kind, should continually focus on litigation as a topic. While the framework for the GSTAT (Tribunal) has been formulated, it is more essential to have it up and running. Six years of GST have created a large backlog of appeals and choked our High Courts. Separately, Governments and the GST Council could consider a scheme and regulations in the law to eliminate the possibility of litigation regarding procedural matters (for e.g., improper generation of an e-way bill or e-invoice where there are no revenue implications), minor violations, early day transgressions. An amnesty scheme for these could prove useful to erase litigation and bring about peace of mind for all stakeholders.

Kiran Tahelani,
Senior Associate,
Dhruva Advisors LLP

India has become a role model for GST/VAT across the globe. However, the multiplicity of rates and classification issues that are remanent can be weeded out with a three-slab structure, that will help rationalise this indirect tax system. Presently, the GST tariff has rates of 0.1%, 1%, 1.5%, 3% 5%, 12%, 18%, 28% and cess in some cases.

The GSTN has been the backbone of the GST regime. A critical but pending GST reform is the upgradation of the GST Network, to prevent fake supplies and fraudulent claims of Input Tax Credit (ITC), according to Thinktank Global Trade Research Initiative (GTRI). Data analytics and Big Data will have to increasingly be built into and relied upon by the administration to conduct intelligent assessments and improvise the overall system as processes.

To sum up, GST has made a deep and long-term impact on a wide arena, including the country’s GDP and aids ease of doing business from a taxation standpoint. However, work remains to be done, some of which has been described above. After the blip caused by the Covid-19 pandemic, India is at the cusp of greater heights, as it hurtles towards becoming a (US) $5 trillion economy; GST is one tool available to attain this target.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of ET Edge Insights, its management, or its members

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