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With a few days the Union Budget, India Inc. is waiting to see how the government will provide enablers to increase consumption and strike a balance between providing necessary fiscal stimuli by increasing expenditure in critical areas and providing incentives/tax cuts to boost industry sentiment.
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GST with its due share of plugging, was introduced with primary theory of ‘one nation one tax’. Currently, multiple GST rates of 0.25%, 1%, 3%, 5%, 12%, 18% and 28% are being levied. This has led to varied compliance complexities and has also projected the Indian peninsula as non-friendly from a tax and regulatory perspective. With multiple discussions at various forums, it is now to be seen if the government will finally cede to demands of stakeholders and rationalise tax rates to fewer tax slabs in view of current economic situation and industry demand.

Petroleum under GST could rationalise tax structure

Inclusion of petroleum products within the GST ambit is long due. To keep the states’ revenue interest in place, petroleum products are still being kept out of the GST net. However, the retail petroleum prices in India, which include ~70% taxes (central and state), lead to a significant additional cost in the overall production cost for almost all manufacturing activities. Inclusion of petroleum products within the GST regime would not only rationalise the tax structure but would also lead to a substantial reduction in overall logistics and distribution costs for most products and services.

Further, the industry anticipates further rationalisation of input credit eligibility on all activities having direct or indirect business nexus. To ensure absolute compliance and prevent unwanted litigation, clarity is required on various ambiguous issues, such as what constitutes ‘supply’ under transactions such as taxation of intra-office cross charges, employer employee activities, activities undertaken by not-for-profit sectors, etc.

Uniform procedures for better compliance

In addition to the above, applicable methodology and uniform procedure for adherence to anti-profiteering provisions has been a subject matter of debate ever since the introduction of GST. Absence of the same has not only led to adverse findings but faced strong opposition from taxpayers demanding legality of the said provisions at a judicial level. While the application of these provisions has been extended until March 2021, immediate addressal of same would result in better compliance and prevent unwanted harassment and litigation for law abiding taxpayers.

Enabling ease of doing business

In the recent past, ease of doing business has been the foundation of Indian economic policies. However, rapid changes in GST law, such as mandatory e-invoicing, launch of new-return formats, ever-changing due dates, tax rate changes, frequent notifications amending procedure for filing GST refunds, etc., have kept taxpayers constantly on tenterhooks. To alleviate stress and uncertainty, the government should propose major policy decisions in the Union Budget, thereby, providing industries the opportunity and time to plan and function in a better manner.

Many taxpayers continue to face challenges on account of non-eligibility of refund of GST in cases of inverted duty structure. This issue persists across sectors, such as textiles, railways, mobile phones, fertilisers and footwear. As exiting provisions of the GST law do not allow refund of accumulated input tax credit of input services procured while filing refund application under inverted duty structure, it results in blockage of credit of input services with the businesses, thereby leading to huge working capital limitations. Alleviating this would not only allow access to blocked funds to business houses but will also lead to a greater ‘ease of doing business’ in India.

While decisions on critical issues concerning GST are made by the GST Council, the Union Budget is the right forum to make concrete positive announcements, thereby showcasing the government’s intent of addressing industry pain points. This would not only unleash renewed enthusiasm in businesses but also provide the government the opportunity to provide a much-needed positive thrust to the economy as well as boost the sentiment of industry and consumers.

Krishan Arora is Partner, Grant Thornton Bharat