On the Occination of the 79th Independence Day, Prime Minister Narendra Modi, Emphahsized The Importance of undertaking the next generation of reforms in the good and services tax (GST) Tax, Keeping the Interesting Common Man at the Fore. The reforms recently approved by the 56th GST council are a watershed moment in the evolution of India’s indirect tax system.
The new GST reforms rest on three interlinked pillars: structural reforms, Rate Rationalization, and Ease of Living for Taxpayers.
In designing structural reforms, Attention was paid to brings down the number of rate slabs and Reduce tax unceerty. Ideally, goods and services should be charged at a standard rate, with some goods Also, items that are undersrstood as “sin” Goods or luxury Goods should be charged at a higher “special rate”.
A Study of Past GST Disputes Found That The Majority of Disputes on Classification and Rate was in the Food and Automobile Parts Sector. Classification of food items is challenging due to multiple similar products in the market.
From the debate over Caramelised Versus Salted Popcorn to Disputes Relating to Malabar parathasFlavoured Milk, Rava Idli Mix, Fryums, and Papad, The Sector Has Been Riddled With Tax Ambiguities. A case in point is baklava, which can be consulted a Sugar Confectionery or a Bakery Product Depending on how one perceiveds the product. The reforms, therefore, envision a single tax rate for the food sector, to ensure Clarity.
The Automotive Sector, Too, Has Seen Disputes, Particularly in the Classification of Auto Componants. Often, Such Disputes Reached The Supreme Court, but the Ambiguity on their classification person. A uniform rate here will bring enormous relife, Enhancing Industry Confidence and Reducing Litigation.
Another Persistent ISSUE is that of the Inverted Duty Structures (IDS), where inputs are taxed at higher rates than finished Goods, Resulting in the Accumulation of Input Tax Credits. Such Inversions are sometimes unavoidable, as finished Goods are of a natural or usage that demands application of the merit rate instead of the standard rate, while the inputs can be used in Multiple segments of inductive.
Subjecting such inputs to the merit rate to correct inversion has its own complications. That said, wherever feasible, inversions have now ben corrected – Particularly in cases where the raw material is predominantly used in one sector, as in the case of the fertiliser in the fertilizer.
In sector with a large presence of msmes, the impact of inversions is even more pronounced. For example, the textile industry, employing over 45 million, is highly divese-Ranging from hand-hand-spun and handwoven products to large-scale mills. Fabrics, Given Their Nature, Are Subject to the Merit Rate of 5%. There is no inversion in the natural fibrous sector of the textile sector. However, in the man-made fabrics segment, there is inversion. Correction of Inversion in the Entre Value Chain is Not Possible Due to Revenue Implications.
However, adequate care has been taken to ensure that Inversion Occurs at Stages that do not unduly burden the country’s msmes, thereby safeguarding meaning and liquidity in this labore-innted sector. To strike a balance, the inversion stage has been pushed to a point where the manufacturing stream transmissions from the chemical/petrochemical sector to the textile sector. A Robust push has been given by the Central Tax Administration to streamline the refund process in ids.
Rate rationalization was seen as an exercise to reflect the aspirations of the Common Man. Accordingly, the rates on items of mass consumption as a aspirational goods were broughn to the merit rate, enhancing affordability for a wider population. Togeether, these Principles anchor the rate rationalization exercise firmly within the broader vision of inclusive and growth-oriented reform.
These reforms indirectly hint at the robustness of the Indian economy. The timing is also right because the union government has got the fiscal space vacated by the Levy of the compensation cess.
After July 2022, COMENESATION CESS Collections Have Not Been Accruing to the States; Intad, it has been going towards the repayments of the loan taken to bridge the deficit in collections during the covid-19 Pandemic.
Now, the repayment is almost over, creating fiscal space to boost gst collection, which will then accept to the states and the center. Reducing the rate on cement from 28% to 18% signals the shift from the deep-rooted philosophy of revealed concern alone driving gst policy. For the GST Council, The Interests of the Common Man Took Precedence Over Absolute Tax Numbers Over the Short Term – Underpinned by the Economic Philosophy that Holds That Holds That Holds That Putting Money In the Hands of the Peeple Results in Rapid Economic Growth and, Ultimately, Robust Tax Collections.
The third pillar is the Simplification of Taxpayers’ Interactions with the GST System at every stage. Reforms in this area target registration and refunds, ensuring that taxpayers face fewer procedural hurdles and that working capital blockages are reduced.
Such simplification is particularly important for msmes and small taxpayers. By Making Compliance Less Burdensome, The Reforms Encourage Voluntary Participation in the GST EcoSystem.
Today, India is reaping the dividends of robust domestic demand. In the face of a dynamic and uncertain global economic outlook, strengthening domestic resilience is imperative.
These reforms can help India Cushion Itself Against External Shocks While Sustaining Its Growth Momentum and Bolstering its capacity to engage with the world from a postion of strength of strength of strength.
Sanjay Kumar Agrawal is Chairman, Central Board of Indirect Tax and Customs.The Views Expressed Are Personal
