Budget 2024 Expectations: Are GST Reforms coming?

 

Budget 2024 Expectations: Are GST Reforms coming?

GOODS AND SERVICES TAX: BUDGET-2024 EXPECTATIONS 

Yes, GST reforms are anticipated in the 2024 Budget of India. The reforms will focus on rate rationalization, amendments to the CGST and IGST Acts, and new measures to streamline the GST framework. The government aims to address issues like rate adjustments, input tax credit timelines, and introducing an amnesty scheme for non-fraudulent tax payment cases. These changes are expected to enhance compliance and boost consumer spending.

Overall, the 2024 Budget is expected to focus on making the GST regime more business-friendly, reducing compliance burdens, and addressing specific industry concerns to foster economic growth.

Amendments to the GST framework are anticipated to simplify compliance and improve the ease of doing business. This includes revising the annual GST return form (GSTR-9) to allow rectifications/revision and make the filing process less cumbersome for businesses.

1. Rate rationalisation under GST

The multiple GST rates add layers of complexity to the tax system, creating compliance challenges for businesses, especially for MSMEs. With varying rates for different products and services, businesses face challenges in determining the correct tax slab for their offerings, leading to disputes and litigations. Consolidating GST rates, especially the proposed merger of the 12% and 18% slabs into a single GST rate, can significantly simplify India's tax system.

2. Revisiting the GST provisions related to the online gaming industry

On the other hand, offshore illegal betting and gambling have been on the rise. The All India Gaming Federation has submitted8 that the offshore illegal betting and gambling platforms are collecting deposits worth $12 Billion in a year, which implies a loss of at least $2.5 Billion in GST revenues to the Government. This occurs despite the specific legal provision under the law that requires9 offshore online gaming platforms to pay IGST in respect to supplies made by such entities to a person in the taxable territory. Furthermore, where such IGST has not been paid, the websites of such platforms are liable to be blocked10.

Considering the operational challenges and significant financial implications faced by the Indian gaming industry and the rise of offshore illegal betting and gambling activities, there is an immediate need to reassess the provisions that have been implemented. It is important for the Government to re-examine the taxation models in the gaming industry and align its taxation landscape with taxation models prevalent 

3. Inclusion of Petroleum Products under GST

Now there is growing consensus on gradually bringing petroleum products under GST. Aviation Turbine Fuel ('ATF') and Natural Gas stand out as potential candidates for phased inclusion due to their distinct characteristics. The inclusion of ATF and natural gas under GST can significantly benefit both sectors and pave the way for the broader inclusion of other petroleum products. A well-planned, phased approach will ensure a simplified, uniform tax structure aligned with global best practices.

4. Revisiting ITC norms in totality

Section 17 of the CGST Act imposes restrictions on the eligibility of ITC, creating complexities for businesses seeking to claim credits for input and input services used in their operations. 

Removing restrictions on ITC under Section 17 of the CGST Act can significantly benefit businesses by reducing costs and simplifying tax compliance. Aligning GST with the principles of the Income-tax Act, 1961, would foster a more conducive business environment, further advancing the Government's objective of enhancing India's economic growth and competitiveness.

5. Clarity on GST applicability on permanent transfer/assignment of leasehold rights

The issue of taxing the permanent transfer of leasehold rights under the GST regime has generated considerable debate and uncertainty. Although the matter is currently sub-judice, issuing a circular to clarify the taxability would benefit all stakeholders and also clarify the taxability of the permanent transfer of leasehold rights, which would significantly benefit businesses by reducing uncertainty and litigation. By aligning it with the tax treatment of the sale of immovable property, the government can ensure a more consistent and predictable tax environment for stakeholders.

6. GST on Corporate Guarantee

Taxation of corporate guarantee has been a matter of litigation since the inception of GST. Specifically, when a holding company provides a corporate guarantee for its subsidiary company, it is argued that such activity is merely a shareholder's activity and is not a service provided by the holding company.

7. Allowing utilisation of credit ledger balance for reverse charge payments

Under the GST law, there are certain provisions, which are resulting in cash blockages without yielding any incremental revenue for the Government. For instance, on the import of services, a recipient of services is liable to discharge GST liability in cash under a reverse charge mechanism, which will then be available to him as ITC. The mandatory payment in cash leads to cash blockage.

The Government should consider allowing taxpayers to use their ITC balance of GST for payment of tax under the reverse charge mechanism. The ability to use ITC balance to discharge the RCM liability would not only address the cash flow issues but also streamline the tax administration process, making it more business-friendly without compromising the tax revenues for the Government.

8. Whether to compute interest on Gross or Net tax amount after utilising ITC?

Under the GST laws, the interest is typically calculated on the amount of tax payable, for the period of delay in filing the periodical return. According to Section 50 of the CGST Act, 2017 if a registered person fails to pay tax by the due date, it shall be liable to pay interest at a prescribed rate of 18 percent.

Additionally, conflicting decisions have been issued by different High Courts on this issue. It is recommended that the Government should make necessary amendment in the said provision and issue detailed guidelines to resolve these ongoing disputes in the upcoming budget.

9. ITC reversal on the transfer of exempt intermediate products to distinct entities that become taxable upon final sales

The above situation leads to the cascading effect of tax, where ITC is blocked due to the exemption of the transfer between branches under GST, even though the final product is taxable. This restriction leads to added costs for businesses. To mitigate this issue, it is recommended that a specific provision must be introduced to ensure the eligibility of ITC in such scenarios.

10. Allow use of Electronic Credit Ledger balance for payment of pre-deposits

Section 107(6)(b) of the CGST Act, 2017 does not use the term 'tax' but uses the term 'sum' for the payment of pre-deposit. Thus, the entire dispute revolves around the issue of whether the pre-deposit is an output tax liability. Hence, it is recommended that necessary amendments be made to the provisions allowing payment of pre-deposit through electronic credit ledger.

11. Enabling provision to split up a composite supply.

Health care services provided by a clinical establishment, an authorised medical practitioner, or paramedics are exempted from GST. However, with effect from July 18, 2022, the exemption is not available to the services provided by the clinical establishment by way of providing a room (other than ICU/CCU/ICCU/NICU) with room charges exceeding Rs. 5,000 per day to a person receiving the health care services.

If the principle is applied to the supply of health care services, the component of room rent cannot be separated from the supply of health care services even where it exceeds Rs. 5,000. Thus, exemption would be available on the whole of the supply of health care services, including the component of room rent.

Thus, the relevant exemption entry should be revisited to do away with the GST levy on the room rent, as the law does not allow splitting up the composite supply. However, if the Government intends to provide a separate tax treatment to a component of composite supply, then such splitting of the composite supply should be backed by the GST law, which would require necessary amendments in the definition of 'composite supply'.

12. One single central GST account at the national level for companies having multi-state operations

13. One-time Dispute Settlement Scheme

A GST-specific Legacy Dispute Resolution Scheme could replicate the success of the previous scheme under central indirect taxes, providing much-needed relief and clarity to businesses grappling with GST compliance. It would also demonstrate the government's commitment to fostering a more cooperative tax environment and ensuring the smooth functioning of one of the largest tax reforms in Indian history.