TIOL - COB( WEB) - 941
OCTOBER 10, 2024

By Shailendra Kumar, Founder Editor

INDIAN economy is in the vanguard of giant contributors to the dynamic growth of global economy in 2024. And it is literally riding the galloping horse of digital economy which has skyrocketed from 4.5% of its GDP in 2014 to close to 18% this year. The digital investment in India has been booming, with a surge in many sunrise sectors such as fintech, e-commerce, crypto, online gaming, AI & blockchain start-ups and many more. In the next four years, it is projected to account for USD one trillion market-size. A slew of mega FDI entities continues to be bullish on India. So are the tax authorities - both, direct and indirect! Among the taxes, GST has emerged as a potential downer for the gung-ho sectors. To understand the chromosomes of their sombre issues resulting in fearful tohubohu, and to make implementable recommendations to assuage their 'tax trauma', TIOL Tax Congress 2024 had its first technical session - "Ease of Doing Business & GST on Digital Economy" - on 1st October in New Delhi.

The session was moderated by the fire-baked veteran lawyer Mr V Lakshmikumaran who observed that albeit India has copiously reaped benefits of IT Agreements of WTO but its tax laws are laggard in keeping pace with the accelerated digitalisation of the economy. Taxation of B2B transactions is up to snuff but B2C is a problem child. He also talked about many economies humming and hawing over the new levy on import of digital products as the extended WTO pact inches close to its expiry. Malaysia has already rolled up its sleeve and India is playing with the 'crease'! While talking about cross-border transactions he asked the former CBDT Chairman, Mr J B Mohapatra, how are such transactions taxed under direct taxes? Referring to the new age digital economy, Mr Mohapatra said that there is plenty of new avenues to make money such as social influencer, climate activist and virtual currency like crypto. Since there is no competent regulator for such sectors, RBI is worried about losing its monetary sovereignty over digital currency. India needs new legislations to bridge the gaps which are presently being taken advantage of by scammers in the market.

When the former Principal DG, DGGI, Mr Anil Kumar Gupta, was asked about the tax doldrums being confronted by the genuine GST taxpayers, he said that in many new areas like carbon credit and fintech, a good chunk of taxpayers is not even in the know of their tax liability, voila! Even if one is aware, one does not know how one is taxed, he added. Sharing his DGGI experiences, he elaborated that contrary to the general perception of the agency bigfooting the GST landscape, the preventive agency works like a Trojan horse to differentiate between tax avoiders and tax evaders and acts hard only against tax dodgers. In case of genuine taxpayers like foreign airlines and shipping companies, which were subjected to different interpretations recently, the agency engaged with the CBIC and the GST Council, and the Council took decisions on many of its flagged concerns. Thus, clarifications were issued to exempt them from tax liabilities. Similarly, insurance and co-insurance taxpayers were also exempted. So, the government is trying hard to assuage the ruffled feelings of genuine taxpayers but certainly not of scammers indulging in organised ITC frauds and other offences.

Referring to blockade of ITC, Mr Lakshmikumaran asked Mr Gupta - Should not there be a provision to allow ITC in case of B2B transactions based on the principle of revenue neutrality? Mr Gupta was quite emphatic in ruling out space for revenue neutrality in GST regime. Speaking of the GST design, he said that revenue neutrality does not work here as the incidence of taxation is to cover the entire chain of value-addition to facilitate the seamless flow of credit. Secondly, he stressed that revenue neutrality cannot be a kosher ground not to comply with the laws. Thirdly, if titans give short shrift to compliance, what can be expected from small fishes? My opinion is that the doctrine of revenue neutrality has no place in GST which has ITC as its spinal cord. Secondly, GST is a much more advanced form of indirect taxation which captures maximum possible economic data - key driver for computation of the GDP. On the issue of limitation period, Mr Lakshmikumaran trekked back to the legacy legislation of Central Excise Act, 1944 which started with 90 days limitation period but the same was later extended to five years. He observed that limitation period of 6 years in GST is killing too many companies. He asked Mr Gupta about the prevailing thinking in the government to help genuine cases. Mr Gupta revealed that the present extended limitation period is only because the industry demanded the merger of normal and extended period. However, a review may be initiated to grant relief.

Swirling away from the alleged 'illiberal zeitgeist', the moderator asked the Managing Director of Kshitij Capital, Mr Kshitij Sheth - Do you hum and haw to invest in India because of taxation issues? He said that every foreign investor takes into reckoning factors like political stability, ease of doing business, predictability and valuation issue in taxation. India is one of the top three investment destinations in the world. He observed that though India has done significantly better on many of these scales but it is also prone to two-steps forward and one-step backward. On the GST front, he opined that more distance needs to be travelled. He further added that unaddressed issues in GST leads to uncertainty which means lesser investment. Higher taxes are fine but clarity in taxation is more important for investors. Answering the same question, the Director, South Asia, Winoa Abrasives India, Mr Amrendra Kumar, said that they are planning major investments in India but there are festering issues like delay in operationalising GST Tribunal; corking of ITC and the rising curve of GST litigation which is time-consuming for any business.

When the Advocate and former GST Commissioner, Mr Radhe Shyam Sharma was asked the question - What steps are needed to reduce litigation in GST regime, he said that simplification of laws is acutely needed. Secondly, the CBIC needs to putty holes at the quasi-judicial level which stirs the possum and triggers frivolous litigation and multiple interpretations by the audit commissionerates needs to be better coordinated and regulated by the Ministry to minimise litigation. On this note, the first technical session ended with many valuable recommendations for the policy makers. I sincerely hope that the GST Council and the Finance Minister Office would pay heed to the well-articulated lightning rod of concerns. One immediate step can be to further liberalise the recently-announced amnesty scheme to envelope more cases which would otherwise end up choking the breathing pipe of the higher judicial forums! Sacré bleu!