By Gokul Chaudhri and Nidhi Lukose
GST, India’s largest tax overhaul, came into effect on July 1, 2017. The groundwork for this tax reform was established 17 years ago. Five federal taxes and six state levies were included, with the adoption of GST, and the ‘one nation-one tax’ idea was born. Six Union Budgets and 49 GST Council meetings later, what exists now is an updated form of the law that is considerate towards industry needs.
As per the recent survey undertaken by Deloitte, 94% of respondents across industries expressed an affirmative sentiment towards GST as compared to 90% last year.
A business-driven law
“GST is the taxation system of New India, of Digital India. It is not merely Ease of Doing Business. It is demonstrating Way of doing Business. GST is not just a tax reform, but it is a landmark step towards economic reforms. Beyond the taxation revamp, it is also paving the way towards social reforms. It is an avouchment for corruption free taxation system. In legal parlance GST may be known as Goods and Services Tax. But the benefits of GST will positively ensure it to be ‘Good and Simple Tax’ for the citizens of India.” – Hon’ble Prime Minister Shri Narendra Modi on the launch of GST (July 01, 2017)
The GST law and environment have truly altered on all fronts, whether in terms of compliance, legality, or governance – in a way it has truly changed the “way of doing business”.
One cannot ignore the fact that the decisions of the GST Council have been more and more business driven and not just tax oriented.
Infact, pursuant to the decision taken by the GST Council in the 50th meeting held on 11 July 2023, a circular has been issued to clarify on the Input service distributor mechanism under GST as well as on the cross charge for internally generated services. The circular could not have been timed better as we have just stepped into the 7th year of GST. 98% respondents to Deloitte’s GST@6 survey had sought clarity on ISD vs cross charge issue.
Another key decision has been to proactively address the issue around holding of equity in subsidiary company before it turned out to be a full-fledged litigation.
Technology on the forefront
It is encouraging to see how the GST law, as well as the ecosystem, have become increasingly tech based. Using technology with the 3Es in GST – E-return, E-invoicing, and E-way bill, is more than simply a tax reporting and compliance activity. It is a vital facilitator to realise the aim of Digital India and Digital Economy. Around 84% of industry leader as per the Deloitte survey, have given a thumbs up to the Government’s efforts towards technological advancements.
The technologically driven changes are more than just tax requirements, they have resulted in complete business transformation by promoting automation and digitization of the accounts payable and accounts receivable processes, increasing efficiency, automation of reconciliations and tax filings and ensuring a robust tax function.
CBIC is truly adopting technology to not just improve scrutiny and for early risk detection, but also to improve the overall tax ecosystem; measures such as Aadhaar based authentication, pilot for biometric authentication and the special drive to weed out bogus GSTINs, are all steps in the right direction.
Small decisions, big impact
With the law and environment in place, the Government’s focus has shifted to MSMEs and the ease of doing business for small businesses. To encourage, the GST Council made an MSME-friendly decision to allow the registration exemption threshold for online providers of goods while also allowing online sellers to participate in the composition scheme, enabling millions of small and medium-sized businesses to come online and expand their reach while benefiting from better efficiencies. Around 74% of the respondents as per the Deloitte survey, have identified threshold relaxation for compulsory registration as the most beneficial measure for MSMEs.
Another noteworthy change has been to allow transfer of cash ledger balances. This is not a tax decision but a business one as it really hits the right chord with taxpayers – say bye to last minute cash funding for tax payments. Fungibility of cash among states has resulted in working capital optimization and doing away with the hassle of taking refunds.
While sequential filing of returns is in itself an innocuous change, however its impact is significant as it results in better AP management. A business can de-risk itself from a non-compliant vendor knowing that it has not filed the previous return.
E-invoicing status availability ensures real-time ability to check for vendor non-compliance – no e-invoice means invalid tax invoice. Businesses can leverage on the list provided by the e-invoice portal to understand if the vendor is compliant in raising e-invoices or not.
A lot has been done and a lot needs to be done
Yes, GST has certainly been beneficial, but there is lot more ground to cover.
- Implementation of harmonised approach to scrutiny and audits – GST Council has released the All-India Model GST Audit Manual, which provides for a single approach to audits. This needs to be implemented and adopted sooner than later and nation-wide trainings for officers (Central and State) is de-minimus for a uniform approach.
- Dispute resolution – Industry has waited for 6 long years to have effective dispute resolution. The Appellate Tribunals need to be established at the earliest. While the legal framework has been designed, it’s the setup that’s key. The 50th meeting of the Council has paved the way for setup of the Tribunals with identification of States where the benches would function.
- New-age models need acceptance – Gone are the days when Mr. X in State A needed a full-fledged business set-up in State B to start a business. We have shared space models and the possibility of virtual presence, which are significantly efficient from a cost as well as business operation perspective. Along with digital records and periodical tax compliances coupled with the 3Es, there is a strong need to recognize these models for the e-commerce space where a monthly tracking mechanism already exists in the form of TCS. This has also been recommended by the 172nd Parliamentary Standing Committee1 and we have a precedence as e-commerce operators can register for TCS in multiple states with the home state address. With the risk detection models available with the tax officers, this can be made into a reality.
- On working capital liquidation, step 1 is done, let’s take step 2,3 and 4 – Allowing cash balance transfer is commendable. However, with revenues stabilising above the INR 1.5 lakh crore mark, it’s time we consider the best practises from around the world to unblock working capital. How about (a) allowing credit of central tax to be transferred across states, (b), allowing reverse charge payment through credit, and (c) refunding of year end GST credits state wise, as in the case of the erstwhile VAT laws
- Removal of ITC restrictions – The infrastructure and investment heavy sectors, such as telecom, warehousing/ logistics, ecommerce, etc are significantly impacted with the restrictions around credit availability in relation to employees and setup of commercial infrastructure. With 68% survey respondents echoing this ask and the revenue growth, removing these restrictions should be considered given the projected growth in economy which warrants infra investments as well as employment creation.
During the last six years of GST, the government has been proactive in issuing a deluge of circulars, clarifications, and orders. It is hoped that the government continues paying attention to the concerns raised by stakeholders by streamlining processes which are necessary, to avoid unnecessary pile up of litigation and unending disputes.
India is at a crucial stage in the GST journey as it enters its 7th year. With the dynamic growth of business activity and tax collections, this seems well-timed given that international businesses are looking to explore new bases post the pandemic.
In the next five years, a positive change in taxpayers’ compliance behaviour and government’s continued efforts, will ensure a more simplified and smooth GST structure for all stakeholders which will truly make it a “Good and Simple Tax”!!
The author Gokul Chaudhri is President- Tax, Deloitte India and Nidhi Lukose is Partner, Deloitte India.
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