Seven Years Of GST: Rate Rationalisation, Tribunal Operations Remain Top Picks For 2.0

A recent Deloitte survey of Indian businesses reflected a growing positive consensus. About 84% of the respondents reported a positive perception of GST in 2024, which was up from 72% recorded in 2023 and 59% in 2022, according to the survey.

The positive sentiment, it said, were largely due to the tax technology framework, financial and supply chain efficiencies, removal of ambiguities through clarifications, stakeholder consultations held by the government and the clarity around regulatory guidelines.

However, this is notwithstanding recommendations to rationalise GST rates across sectors, with a focus on correcting inverted duty structure and enabling an effective dispute resolution mechanism.

The Group of Ministers report on rate rationalisation, which has seen much reconstitution following various state elections over the years, is currently convened by Bihar's Deputy Chief Minister Samrat Chaudhary, and includes member representatives from Uttar Pradesh, Goa, Rajasthan, West Bengal, Karnataka and Kerala.

The GoM is tasked with reviewing exempt goods, eliminating breaking of Input Tax Credit, correcting inverted duty structure and simplifying the existing slabs.

While the intention has always been to call it 'one nation, one tax', it loses its relevance when there are different slabs and rates, according to Shashi Mathews, partner at IndusLaw.

At every council meeting, there is an expectation of rate rationalisation, as this is crucial to achieve full seamless credit flow and avoid inverted duty structures, he said. There is a need to re-classify the rate on items like air conditioners, which are increasingly becoming a necessity, he said.

There is a need for an immediate overhaul of the existing GST rate structure, said Smita Singh, partner at S&A Law Offices. "...The objective towards review of rate rationalisation should be to streamline the GST rate structure and not to harvest additional revenue for the government," she said.

The inverted duty structure is also leading to blockage of ITC in many sectors, such as engineering, leather, textile and edible oils, she said.

The multiplicity of rates gives rise to classification-related disputes and complexities in business, which further protract litigation.

Gunjan Prabhakaran, partner and leader for indirect tax at BDO India, noted that while GST is still evolving, few areas need an early consideration.

Prabhakaran considers enabling input tax credit claim to be chief among them. There are many goods and services, on which businesses are not eligible to claim ITC—many of which are genuine business expenses, she said. "This is contrary to the concept of a value-added tax, which is meant to allow the ITC of tax paid on all inputs used in providing output supplies."

While answering questions at the 53rd GST Council Meeting, Union Finance Minister Nirmala Sitharaman had said that the inclusion of fuel in the GST ambit requires state-level consensus. Industry, however, is keen to see fuel included, as it would offer the possibility of claiming input tax credit in the tax value chain.

There are still critical aspects which need to be considered on an urgent basis, and inclusion of petroleum products within the ambit of GST tops the list, according to Mathews.

Prabhakaran noted that the consistent growth in GST collections signal the time to bring the petroleum products under the net. "A beginning can be made by bringing in ATF and natural gas in the GST ambit immediately and a time frame can be defined to bring crude oil, petrol and diesel under the GST ambit," she said.

The operationalisation of all GSTAT tribunal benches, whose principal bench president has been recently appointed, is also a long pending industry demand, as it is expected to expedite pending cases and alleviate the burden on high courts.

Krishan Arora, partner at Grant Thornton Bharat, said that the introduction of amnesty schemes marks significant strides towards reducing litigation and ensuring effective dispute resolution mechanisms. In its last meeting, the council approved trade facilitation measures towards dispute resolution, such as including interest and penalty waivers, and reductions in pre-deposit requirements, among others.

"We anticipate further strides in automation and compliance streamlining, akin to direct tax reforms such as faceless assessment, alongside seamless digital integration of inter-departmental data," Arora said.