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Union Budget 2023: Indirect tax reforms that India Inc expects from government

Krishan Arora,
Pragya Sharma,
Vasu Aggarwal
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For the past three years, the Union budget has seen a focus on ‘support’ and ‘recovery’ of the Indian economy, which has reaped fruitful outcomes for India Inc.

Riding high on the vigour encapsulated through propelling economic recovery, steadily fortifying the banking and financial system, the Narendra Modi-led government is all groomed to unveil its last full-fledged budget ahead of the general elections set to kick off in early 2024.

For the past three years, the Union budget has seen a focus on ‘support’ and ‘recovery’ of the Indian economy, which has reaped fruitful outcomes for India Inc. However, it is expected that in the upcoming budget, the government may expand its focus on keeping the ‘growth’ momentum on track and roaring to achieve the long-enumerated feat of realising a $5 trillion economy, while keeping the fiscal deficit and inflation in check.

Solve GST issues

Goods and Services Tax will play a pivotal role in accomplishing this goal considering the generous contribution it is making to the exchequer’s revenue basket. In the past year, against the backdrop of a vibrant economy, a steady rise in GST collections was seen, which ultimately stabilised at around Rs 1.4 lakh crore.

While it has been half a decade since the implementation of one of the biggest greenfield tax reforms in India, various practical life concerns in relation to the same continue. Several issues have been addressed, but there are still many issues that need expeditious resolution.

Amidst a sharp rise in legal proceedings and litigations, it is expected that the government may announce the long overdue constitution of the GST Appellate Tribunal, which represents the second stage of appeal in GST judiciary, in the Union Budget 2023.

The Constitution of the GST Appellate Tribunal would provide aid in eliminating challenges being faced by taxpayers who are left with no choice but to approach higher judicial forums in the event of wishing to file an appeal against the first appellate authority.

Further, pre-deposit is a mandatory requirement for filing an appeal. Under GST Laws, there is no explicit provision for making such payments from the electronic credit ledger. The matter as to whether the pre-deposit can be paid using the balance in the electronic credit ledger has been a matter of extensive litigation wherein contradictory viewpoints have often been taken by the tax authorities in different cases. Clarification in this regard is much needed by India Inc.

Additionally, in the recent GST Council meeting, a major decision with regard to decriminalizing three types of GST offenses - preventing any officer in the discharge of his duties, deliberate tampering of material evidence and failure to supply information was taken. It is expected that corresponding amendments to the GST Act will be brought in the upcoming budget.

Amnesty scheme in focus

One of the other key expectations from the budget is the expeditious introduction of an Amnesty scheme to settle all procedural disputes hovering under GST law since its inception. This will aid not only in augmenting already buoyant month-on-month GST revenues but also reduce the administrative burden of GST officers in undertaking lengthy enquiries or assessments.

This will be quite helpful for smaller taxpayers to negate the burden of disputes, especially those that have arisen on account of glitches in the GSTN portal and migration to GST law.

Ease working capital requirements

Back in 2021, the GST Council decided to allow taxpayers to transfer the unutilised balance in the cash ledger under the heads of CGST and IGST to another entity under the same PAN. However, implementation of the same in CGST Rules was not undertaken. Timely introduction of such provision in the GST Act may ease up the working capital requirements and impart much needed support to both big and small businesses.

Inverted duty structure

Another most pressing demand by the industry which merits consideration, is the request for correcting the inverted duty structure which has been a source of hardship for many industries ranging from textiles to aluminium sectors that find their input credit blocked due to higher rates of taxes on inward supplies as compared to outward supplies.

The government is even closely examining the inverted duty structure in textiles, which is the second largest employer in the country after agriculture. To attract investment and enhance export competitiveness, resolving these inconsistencies in the Budget 2023 is of paramount importance for the government.

Rate rationalisation

Over the years, the government has consistently worked towards ‘rate rationalization’ by bringing down the GST rates on several goods to achieve a three-slab structure instead of the current four-slab structure under GST. It is expected that the government may take up the same issue on a more expedient basis to also help with correcting the practical problems associated with the inverted-duty structure.

Ease GST compliance

Further, on the GST compliance front, as of today, on one hand, the GST Act provides that a taxpayer is eligible for claiming input tax credit on basis of the statement of outward supplies filed by the supplier, while on the other hand it provides that such credit shall only be eligible if such tax charged in respect of such supply has been actually paid to the government.

In practice, matching of ITC is required to ascertain the eligible credit but the law provides no express mechanism to verify if tax liability on the same has actually been discharged by the suppliers, thereby transferring the burden of compliance from the government to the taxpayer.

A recent circular clarifying the manner of dealing with such discrepancies for FY 2017-18 and 2018-19 was issued. However, clarification for the remaining period is still awaited.

Reduction in customs duty

Apart from GST, the industry is looking forward to more rate rationalisation announcements and reduction in customs duty on certain products, especially to ensure smooth imports of raw materials. It is also expected that there may be announcements about a possible hike in customs duty on dozens of products across sectors — including aviation, electronics, steel and industry, to curb non-essential imports and further improve local production.

Top up allocation for PLI scheme

It is also expected that the government may top up allocation for ongoing Production-Linked Incentive (PLI) schemes in the budget. Allocations for sectors that have seen a high impact on the ground under active PLI schemes such as electronic manufacturing and IT hardware could be raised and new sectors may be included in the programme to reignite manufacturing in India and boost exports, along with other measures to spur investments.

Industry expects growth-oriented budget

It is evident that the government has brought many changes in the GST landscape with respect to self-certification of audit reports, creating a compliance-driven robust system by interweaving GST returns, e-way bills and e-invoicing systems.

However, there are still many other areas that the government needs to work upon in order to help achieve its target of ease of doing business in India. With an aim for stable economic growth and global prosperity, it is expected that the finance minister will consider the expectations of India Inc to deliver a message of good economics and will present a comprehensive and growth-oriented budget.

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