Union Budget 2022

Budget 2022: Rationalise GST rates to simplify tax slabs and accelerate consumption

Krishan Arora,
Devika Dixit,
Vasu Aggarwal
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Ahead of the Union Budget 2022 to be presented on February 1, 2022, businesses look forward to the reforms and reliefs for the financial year ahead. Expectations are circling on economic recovery and ease of compliance, as all eyes are on India's investment cycle to kickstart and move towards becoming the fastest growing economy in the world while remaining inclusive and sustainable.

The forthcoming Union Budget will be critical from sustaining the growth turnaround after the induced stress of the Covid-19 pandemic.

While Covid-19 adversely affected many businesses and households, GST collections have surged. This positive trend is likely to continue due to economic recovery and anti-evasion measures implemented through a Business Intelligence and Fraud Analytics (BIFA) tool and Memorandum of Understanding (MoU) between Central Board of Indirect Taxes and Customs (CBIC) and (Central Board of Direct Taxes) CBDT for regular exchange of information. The government may further strengthen the same by accelerating the digitalisation of tax administration.

The use of technology can address various issues and identify players within the shadow economy, thereby creating further avenues to recover lost revenue, improve taxpayer morale, and restore trust in the system. Tech solutions can significantly reduce informal activity and revolutionise the operation of tax authorities and their interaction and relationships with taxpayers.

The long impending demand for a simplified tax structure with fewer tax slabs, zero multiplicity in taxes, and more effortless flow of input tax credit in the system are expected to be discussed in this Budget. While the number of items in the 28 per cent tax slab has been brought down in the past years, rate rationalisation has only partially been achieved. But much more needs to be done to attain the much-demanded rationalisation of GST rates to simplify the tax slabs and accelerate consumption.

Litigation proceedings have almost come to a standstill owing to the prolonged pandemic. Taxpayers expect the Budget to present a comprehensive plan to reduce pending litigations and fasten the clearing of pending caseload. The government may consider widening the ambit of cases eligible for settlement under Sabka Vishwas Legacy Dispute Resolution Scheme (SVLDR). As a one-time measure, the government may consider compounding demands, including cases of custom duty. Furthermore, SVLDR may also cover cases where only interest liability is under dispute. Alternatively, the government may also consider introducing a separate amnesty scheme, especially under Customs and other issues, which should help clear pending litigation and mop up revenue for the government.

Regarding working capital optimisation, taxpayers are always looking at Input Tax Credit (ITC) eligibility on business expenses. There is still clarity required on the admissibility of ITC for costs incurred towards CSR activities and the pandemic. Since such supplies are being procured in business and mandated by law, industry opines that availing of (Input Tax Credit) ITC of GST charged on the supplies should not be in dispute.

Demand for correcting an inverted duty structure is another critical area that requires evaluation. The government is continuously making attempts based on discussions with industry. Additionally, the industry is also hoping for an allowance of refund of ITC relating to input services under the inverted duty structure, which is currently being disallowed, resulting in higher business costs. Further, there are delays in processing GST refunds under various categories leading to a working capital crunch to businesses (whereas there is a statutory timeline of 60 days of disbursing the refund amount). Additionally, companies expect key decisions taken during GST Council meetings to be implemented through proposed legislative changes by the finance minister.

In the previous budget, many exemptions related to Customs duty were withdrawn. More than 400 old exemptions are expected to be reviewed in the upcoming one. The government has been engaged in extensive consultations with the industry. The outcome of this revamp would be critical in providing the much-needed push to India's pursuit of ease of doing business and enhancing its global positioning.

While the Union Budget is expected to address critical issues of demand generation, job creation, and economic growth, it should primarily revolve around measures to stabilise and recover the economy from the repercussions of the ongoing pandemic, focusing on specific sectors and digitalisation. The economy may have bounced back from the aftermath of the last two waves but the right policy measures aimed towards economic revival would be the key to determining how well India would come out from the crisis in the post-pandemic world and set the roadmap for future development.

This article was originally published in The Time of India.