NEW DELHI: The journey of India’s Goods and Services Tax (GST) may have been a ‘seven-year itch’ — to borrow the title of a Hollywood classic – with the entire exercise of carving out an acceptable framework, federal consensus, and accommodation of diversified interests — but the pathbreaking overhaul of the indirect tax landscape is at an inflection point as it touches 7 years of implementation on 1 July, 2024, amidst record collections exceeding INR 20.14 trillion in FY 2023-24 and growing clamour for a simpler, less onerous and more effective architecture.
Finance Finance Nirmala Sitharaman on Saturday chaired the 53rd meeting of the GST Council, at Bharat Mandapam. Minister of State for Finance, Chief Ministers of Goa and Meghalaya, Deputy Chief Ministers of Bihar, Haryana, Madhya Pradesh, and Odisha along with finance ministers of states & UTs (with legislature) also attended the meeting.
In its 2.0 avatar, the GST reform agenda is being dominated by demands for improving ease of doing business, effective dispute resolution, maximising impact by using GST data and optimising facilitation/compliance, streamlining the tax framework and focus on MSMEs. Amendment to overrule retrospective tax demands and offering an effective dispute resolution process are holding forth in industry, business and other stakeholder discourse ahead of the Budget to be presented in July which is expected to chart India’s reform path for the next five years even as about 84 per cent of India Inc. in a Deloitte GST@7 survey express strong support for the GST implementation. As per
the survey, confidence in the reform has significantly increased from 59 per cent in 2022 and 72 per cent in 2023 to 84 per cent in 2024.
The Global Trade Research Initiative data shows GST has become the world’s largest platform for indirect taxes with over 1.46 crore registrations. In FY2024, GST collections reached Rs 20.18 lakh crore with 29.85 per cent from imports, 26.92 per cent from inter-state supplies and 43.23 per cent from within-state supplies. “India Inc. has enhanced confidence in the workings and efficiency of the GST regime. Such positive sentiment is reflective of supply chain efficiencies, the benefits of tax, technology and continued stakeholder engagement on GST policy matters,” says Mahesh Jaising, Partner and Leader, Indirect Tax, Deloitte India, echoing the call for progressive steps to take the regime to a new level.
“The survey reveals that it is time to push for further reforms to make the regime more robust, dynamic and responsive to taxpayers’ needs. GST 2.0 should review the possibility of expanding the tax base, remove ITC restrictions, further the export liberalisation for services, unlock working capital and address concerns related to operational areas of compliance. Some of these crucial recommendations may have been key discussion points at the GST Council meeting. For the common man, a wide perception is the need to reduce GST on basic food items, healthcare services and educational materials which can make these necessities more affordable, encourage higher consumption. Tax collection on these is insignificant.
Underlining industry concerns, CII President Sanjiv Puri has, in recent
Pre-budget consultations with the Revenue Secretary, called for continued simplification and rationalisation of direct taxes and further GST reforms for continued tax buoyancy. Emphasising that free flow of credit chain is the key towards GST implementation, CII observes that as tax revenues have stabilised, the GST Council may consider bringing petroleum, electricity, real estate sector within the ambit of GST to ensure free flow of credit through the supply chain. This will also reduce power and logistics costs. To simplify the tax structure, Puri suggests doing away with a variety of current tax slabs under GST. The CII submission is that tax slabs should be reduced to 3 slabs – 12 per cent slab could be merged with 18 per cent slab, to be around 14 or 15 per cent – and tax slab for similar products should be one for ease of doing business.
Ajay Srivastava, Founder GTRI agrees on reduction in number of tax slabs. Today, the GST rates are divided into primary rate slabs of 0 per cent, 5 per cent, 12 per cent, 18 per cent and 28 per cent. Special rates for gold and silver are 0.25 per cent and 3 per cent. The composition scheme rates are 1.5 per cent, 5 per cent or 6 per cent. Specific transactions have rates such as ‘Tax Deducted at Source’ at 2 per cent and ‘Tax Collected at Source’ at 1 per cent.
For further unburdening, CII urges review of the inverted duty structures as several products and services currently face inverted duty structures with the result that effective tax liability is higher than the prescribed rate. While refund mechanism of accumulated tax is prescribed, the refund of accumulated tax attributed to input services and capital good is not admissible.
There are finer sticking points, as for instance, GST law empowers tax officers to invoke punitive provisions against taxpayers including prosecution, arrest, fine and imprisonment.
A negative list of areas, if provided, which specifies cases where prosecution provisions should not be made applicable such as (interpretational issues, clerical errors, etc.)
Srivastava also argues for doing away with state-wise registrations. In FY 2024, 43.23 per cent of total GST collection came from within-state supplies, while only 26.92 per cent came from inter-state supplies. “This shows that most businesses operate within one state and GST discourages operations across states because a firm must obtain a separate GSTIN and maintain separate accounts for each state it operates in. This contradicts the “one nation, one tax” concept,” notes Srivastava. Since GSTN has detailed location data for all transactions and can calculate state dues from this data, by adjusting GSTN software to allow credit transfer between states or between the center and states, the revenue integrity for states can be maintained while keeping the destination-based tax principle intact.
Another imperative being voiced by stakeholders is to treat E-commerce firms at par with other business. For instance, a village artisan in Karnataka with an annual turnover of less than Rs 10,000 must register for GST, pay tax, and file returns if she sells metalware online, even with such low sales. However, the artisan doesn’t need to pay GST if she sells only within her state. Simplifying GST compliance for e-commerce transactions and providing clear guidelines will make interstate sales easier, especially benefiting small sellers as e-commerce exports grow.
There is much left to be done. Jaising flags support to the Micro, Small and Medium Enterprise (MSME) sector, suggesting the implementation of streamlined processes, such as virtual verification and standard documentation across the country which can help MSMEs effectively navigate compliance challenges and contribute more robustly to India’s economic growth. According to Jaising, 78 percent of MSMEs have shared positive sentiment towards GST implementation in the Deloitte survey this year versus 66 per cent in 2023 and nearly 70 per cent of respondents continue to believe that the quarterly filing of returns for MSMEs is beneficial and improves compliance. What MSMEs need now is paperless invoicing, uniform registration guidelines across India to ease compliance burdens.