DECEMBER 26, 2024

By CA Shailesh Haribhakti

TO establish a simplified, transparent, and efficient Goods and Services Tax (GST) system in India, embodying the principle of "One Country, One Rate, One Law," ensuring equitable compliance, seamless ITC (Input Tax Credit) flow, and fostering economic growth, the following roadmap needs to be considered by the GST Council:

Key Objectives

1. Simplification: A single standard GST rate with minimal exemptions and streamlined laws.

2. Transparency: Clear definitions and consistent application to eliminate litigation and ambiguities.

3. Equity: Inclusive benefits for the economically weaker sections, phased out as income levels rise.

4. Efficiency: Enhanced revenue generation through compliance, not increased tax burdens.

5. Trust Building: Fair treatment of taxpayers and avoidance of retrospective amendments.

Actionable Steps

1. Simplify and Standardize the GST Framework

- Adopt a Single Rate Structure: Transition to a 15% standard GST rate for all goods and services.

- Reduce distortions caused by multiple slabs.

- Address socio-economic needs with direct benefits like health insurance, pension contributions, or food grants for individuals below the per capita income.

- Remove Exemptions:

- Gradually phase out exemptions except for basic necessities.

- Enable seamless ITC for all goods and services to make GST a true consumption tax.

- Include Key Items in GST:

- Bring items like petroleum products (including Aviation Turbine Fuel) under the GST umbrella with ITC availability, aligning with global best practices.

2. Resolve Past Litigation and Clarify Ambiguities

- Close Pending Litigations:

- The GST Council should issue directions to resolve all existing grey areas within the next council meeting.

- Retrospective amendments to be avoided; focus on prospective, equitable solutions.

- Constitute a Drafting Task Force:

- Set up a dedicated committee to review and amend the entire GST legislation for consistency and clarity in one comprehensive overhaul, eliminating piecemeal fixes.

- Prohibit Retroactive Measures:

- Uphold Supreme Court rulings like in M/s Safari Retreats and avoid eroding trust with retrospective denials of benefits.

3. Strengthen Compliance Mechanisms

- Introduce Severe Penalties for Wilful Defaulters:

- Confiscatory penalties and stringent enforcement to deter fraudulent activities and loophole exploitation.

- Leverage Technology:

- Enhance GSTN capabilities with AI and machine learning for proactive fraud detection and compliance monitoring.

4. Build Cooperative Federalism

- Harmonize Center-State Interests:

- Foster collaboration to bring contentious items under GST and streamline revenue-sharing mechanisms.

- Focus on collective benefits like reduced inflation and enhanced competitiveness in exports.

- Address Political Resistance:

- Conduct transparent discussions with state governments to ease concerns over revenue losses from items like fuel under GST.

5. Enhance Economic and Social Impact

- Direct Transfers to Vulnerable Populations:

- Offset GST implications on the poor with targeted benefits.

- Benefits like health insurance, pensions, or food grants should be provided until per capita income reaches USD 7,500 or insurance and pension penetration exceeds 90%.

- Promote Inclusive Growth:

- GST revenue should be reinvested in infrastructure, healthcare, and education, driving long-term economic growth.

6. Eliminate Distortions

- Streamline ITC:

- Unblock ITC on all goods and services, ensuring GST remains a pass-through tax.

- Reduce compliance complexities and eliminate cascading tax effects.

- Adopt Scientific Approaches for Tax Classification:

- Define "sin goods" based on measurable criteria, not perceptions, ensuring fairness in tax rates and slabs.

7. Implementation Timeline

Phase 1 (Next 6 Months)

- Resolve all pending litigations and ambiguities through council resolutions.

- Constitute the drafting task force to review and amend GST laws comprehensively.

Phase 2 (Next 12 Months)

- Transition to the 15% standard rate with phased removal of exemptions.

- Bring petroleum products and other contentious items under GST.

- Launch direct benefit programs for low-income groups.

Phase 3 (By July 2027)

- Achieve universal ITC flow and eliminate all major distortions.

- Fully integrate technology-driven compliance mechanisms.

Phase 4 (By 2030)

- Phase out direct benefit transfers as per capita income crosses USD 7,500 and insurance/pension penetration exceeds 90%.

- Achieve a stable, transparent, and efficient GST system that supports long-term growth.

Conclusion:

This roadmap envisions GST as a truly Good and Simple Tax, balancing economic efficiency with social equity. Through consistent policy reforms, technology integration, and stakeholder cooperation, India can set a global benchmark for indirect taxation systems.

(The author is Chairman of Shailesh Haribhakti CA & Cost Accountant firm in Mumbai.)