Calls for major reforms: Rate rationalisation; dispute resolution; input tax credits
India’s Goods and Services Tax is up for reform.GST was implemented in July 2017, and gave the country’s internal market a major boost be simplifying internal trade by removing complex and overlapping multitude of indirect taxes.
India’s GST collections surpassed INR 20.14 trillion in FY 2023-24, demonstrating the country’s economic resilience and the effectiveness of GST implementation.
But it still needs work, from reducing the number of rates through to simplified auditing procedures. And there have been many unheeded calls since 2017 for GST reforms. Below is a summary of major areas needing reform it what is being termed GST version 2.0 by Deloitte.
Key Priorities for GST 2.0
The first long-standing outstanding reforms is GST rate rationalisation, aimed at simplifying the tax structure, reducing compliance costs, and making it easier for businesses to adhere to GST regulations. Rationalising the GST rates is expected to create a more consistent and manageable tax framework, thereby easing the tax burden across industries.
Secondly improving dispute resolution mechanisms. Participants stressed the importance of streamlining processes to resolve tax-related disputes efficiently. Additionally, they emphasized the need to remove restrictions on input tax credit (ITC), which would unlock working capital for businesses and enhance cash flow, especially for sectors facing liquidity constraints.
Thirdly, the introduction of faceless assessments and a vendor compliance rating system as needing a rethink . Faceless assessments would reduce human intervention, enhancing transparency and impartiality in tax administration. The vendor compliance rating system would enable businesses to evaluate the compliance status of their suppliers, ensuring a more accountable and transparent supply chain.
Simplifying audit proceedures
Taxpayers have been calling for simplifying adjudication and audit proceedings under GST. Industry want reducing parallel and multiple legal proceedings, as well as minimizing the risk of expansive legal interpretations, would lessen the complexity of GST compliance. Streamlining these processes is expected to enhance operational efficiency and reduce legal hurdles for businesses.
In addition, the use of GST data to unlock business insights has been called out in the press and industry surveys. This data would enable both businesses and the government to make more informed decisions, guiding future policies. The introduction of a compliance rating system could further enhance transparency and accountability, helping businesses avoid dealing with non-compliant vendors and ensuring smoother operations.
Helping small businesses
For Micro, Small, and Medium Enterprises (MSMEs), there is a need for reforms tailored to their specific needs. Simplifying the registration process and promoting paperless invoicing are seen as crucial steps to reduce the administrative burden on these businesses. These reforms would encourage greater participation in the GST system and foster a more conducive environment for MSME growth and compliance.
