As India celebrates eight transformative years of the Goods and Services Tax (GST), it is time to reflect not only on the triumphs of this sweeping reform but also on the critical issues that still hinder its promise of seamless tax administration and ease of doing business.
GST is, without a doubt, one of the most ambitious tax reforms in the history of independent India. It has unified the fragmented indirect tax regime into a cohesive structure, eliminating cascading taxes and enhancing compliance. The GST Council, comprising representatives of both the centre and the states, has played a pivotal role in fine-tuning the system, demonstrating cooperative federalism at its best.
With technological innovations, such as the GST Network (GSTN), and advanced analytics powered by artificial intelligence, the government has made significant strides in plugging leakages and identifying tax evasion with increasing precision. These developments have instilled greater discipline in the system and have made compliance more transparent and accountable.
Yet, the journey has been far from a smooth ride. The initial hiccups of implementation, the frequent rate changes, procedural ambiguities, and divergent interpretations have all contributed to uncertainty for businesses. Judicial forums across the country have been flooded with disputes, reflecting the need for legislative fine-tuning.
In this eight-year milestone, it is imperative for policymakers to shift gears and confront pressing legal challenges that continue to pose serious roadblocks. These issues, if addressed with foresight and fairness, could truly elevate India’s tax landscape into a world-class system.
Joint Development Agreements: Clarity is the Need of the Hour
The real estate sector, a major driver of economic activity and employment, has long struggled with uncertainty regarding tax treatment in joint development agreements (JDAs). While the government has attempted to bring uniformity in taxing such arrangements, the lack of clear guidelines on the applicability of GST to land transfers and the assignment rights in JDAs has kept developers and landowners on edge.
A well-defined, legally binding clarification is essential to dispel the fog. There should be clarity on whether the transfer of development rights attracts GST and whether such transfers fall within the purview of ‘supply’. Until such clarity emerges, the sector remains in limbo—crippling investment, delaying projects, and spawning avoidable litigation.
Rule 96(10): Clearing the Export Fog
Rule 96(10) of the Central Goods and Services Tax (CGST) Rules, which restricted refund of Integrated Goods and Services Tax (IGST) paid on exports in certain circumstances, has now been deleted prospectively. However, exporters remain burdened by the lingering question — what about the transactions that took place prior to its deletion?
This retrospective ambiguity is no mere technical glitch; it has the potential to disrupt the working capital cycle of exporters who have otherwise complied with all substantive conditions. A prospective deletion cannot logically sustain a retrospective liability, and the government must issue a clear clarification, perhaps by way of a beneficial circular, to insulate bona fide exporters from unnecessary scrutiny and financial strain.
Anti-Profiteering: A Sword Without a Sheath
The anti-profiteering provisions, originally intended to ensure that consumers benefit from tax rate reductions, have often turned into a blunt sword, cutting across businesses with no consistent yardstick. The mechanism to determine profiteering lacks both transparency and objectivity, leading to a slew of litigations and adverse orders.
It is high time that a one-time dispute resolution mechanism be introduced for pending cases, allowing businesses to settle disputes based on a pre-agreed formula. The system must evolve into a rational and consultative framework, rather than an adversarial one, if it is to truly safeguard consumer interest without vilifying honest taxpayers.
Section 17(5): Unlocking Blocked Credits
Input Tax Credit (ITC) is the soul of any value-added tax system. However, Section 17(5) of the CGST Act, which blocks ITC on various grounds, continues to create a cloud of ambiguity and unfairness. What is more concerning is the retrospective amendment that seeks to validate this blocking even for past periods, which runs afoul of the principles of certainty and predictability.
A pragmatic approach by the GST Council is essential. Blanket denial of ITC, especially when the goods and services are used in the course or furtherance of business, erodes the very foundation of GST as a consumption-based tax. A recalibration of this provision is necessary to align it with the larger goals of neutrality and fairness.
Rate Rationalisation: The Need for a Simpler Structure
India’s current multi-tiered GST rate structure, spanning five major slabs (0%, 5%, 12%, 18%, and 28%), is a labyrinth that confounds taxpayers and tax officers alike. While certain steps have been taken to streamline it, the road ahead requires bold and decisive action.
A rationalised three-rate structure, such as 0%, 15%, and 30%, could strike the perfect balance between revenue needs and simplicity. Zero-rating essential items, taxing mass-consumption goods at 15%, and luxury/sin goods at 30% can bring uniformity, predictability, and fairness to the system. Rate rationalisation must be pursued not only for economic efficiency but also for the taxpayer’s mental peace.
Conclusion: It’s Time to Cross the T’s and Dot the I’s
The GST journey has been remarkable, but the road to perfection is paved with complex challenges. The need of the hour is a proactive and consultative approach that addresses legal grey areas and lends stability to the system. With clarity, consistency, and fairness as guiding principles, GST can evolve into the gold standard for indirect taxation, fulfilling its vision of “One Nation, One Tax”.
The GST Council must now seize the moment, rise above the political fray, and act with the boldness that marked the birth of GST itself. After all, when the roots are deep, there is no reason to fear the wind.
—The author, Abhishek A Rastogi, is Founder at Rastogi Chambers, and a Tax and Constitutional Expert. The views are personal.
Source: CNBC TV18
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