[Opinion] Union Budget 2023: Indirect Tax Expectations from Industry

Authored by Krishan Arora – Indirect Tax Leader | Grant Thornton Bharat LLP

Riding high on the vigour encapsulated through propelling economic recovery, steadily fortifying banking and financial system, incumbent Narendra Modi-led Central Government is all groomed to unveil its last full year budget ahead of the general elections set to kick off in early 2024. Post Covid-19 pandemic, for past three years, the Union Budget has seen a focus on ‘support’ and ‘recovery’ of the Indian economy which has reaped fruitful outcomes for India Inc. However, it is expected from the upcoming budget that the government may expand its focus ensuring the ‘growth’ momentum on track and roaring to achieve the long-enumerated feat of realizing $5 trillion economy while keeping fiscal deficit and inflation in check.

Goods and Services Tax will play a pivotal role in accomplishing this goal considering the generous contribution it is making to the exchequer’s revenue basket. In the past year, with the backdrop of a vibrant economy, a steady rise in GST collections was seen which ultimately stabilised at around Rs 1.4 lakh crore.

While it has been half a decade since implementation of one of the biggest greenfield tax reforms in India, however, various practical life concerns in relation to same continue. While several issues have been addressed, there are still myriad issues that need expeditious resolution. Amidst a sharp rise in legal proceedings and litigations, it is expected that the Union Budget may announce the long overdue constitution of GST Appellate Tribunal, which represents the second stage of appeal in GST judiciary. Constitution of GST Appellate Tribunal would provide aid in eliminating challenges being faced by taxpayers who are left with no choice but to approach higher judicial forums in the event of wishing to file an appeal against the first appellate authority.

Further, pre-deposit is a mandatory requirement for filing an appeal. Under GST Laws, there is no explicit provision for making such payment from the electronic credit ledger. The matter as to whether the pre-deposit can be paid using the balance in the electronic credit ledger has been a matter of extensive litigation wherein contradictory viewpoints have often been taken by the tax authorities under different cases. Clarification in this regard is much needed by India Inc.

Additionally, in the recent GST Council meeting, a major decision with regard to decriminalizing three types of GST offences- preventing any officer in the discharge of his duties, deliberate tampering of material evidence and failure to supply information was taken. It is expected that corresponding amendments in the GST Law would be brought in the upcoming Union Budget.

One of the other key expectations from this budget is the expeditious introduction of an Amnesty scheme to settle all procedural disputes hovering under GST law since its inception. This will aid not only in augmenting already buoyant month-on-month GST revenues but also reduce the administrative burden of GST officers in undertaking lengthy enquiries or assessments. This will be quite helpful for smaller taxpayers to negate burden of disputes especially that have arisen on account of glitches in the GSTN portal and migration to GST law.

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Back in 2021, GST Council had decided to allow taxpayers to transfer unutilised balance in the cash ledger under heads CGST & IGST to another entity under the same PAN. However, implementation of same in CGST Rules was not undertaken. Timely introduction of such provision in the GST Act may ease up the working capital requirements and impart much needed support to both big and small businesses.

Another most pressing demand by the industry which merits consideration, is the request for correcting inverted duty structure which has been a source of hardship for many industries ranging from textiles to aluminium sectors that find their input credit blocked due to higher rate of taxes on inward supplies as compared to outward supplies. The government is even closely examining the inverted duty structure in textiles, which is the second largest employer in the country after agriculture. To attract investment and enhance export competitiveness, resolving these inconsistencies in the Budget 2023 is of paramount importance for the government.

Over the years, the government has consistently worked towards ‘rate rationalization’ by bringing down the GST rates on several goods to achieve a three-slab structure instead of the current four slab structure under GST. It is expected that the government may take up the same up on a more expedient basis to also help with correcting the practical problems associated with the inverted-duty structure.

Further, on GST compliances front, as of today, on one hand the GST Act provides that a taxpayer is eligible for claiming input tax credit on basis of the statement of outward supplies filed by the supplier, while on the other hand it provides that such credit shall only be eligible if such tax charged in respect of such supply has been actually paid to the government. In practice, matching of ITC is required to ascertain the eligible credit but the law provides no express mechanism to verify if tax liability on the same has actually been discharged by the suppliers thereby transferring the burden of compliance from the government to the taxpayer. A recent circular clarifying the manner of dealing with such discrepancies for FY 2017-18 and 2018-19 was issued, however, clarify for remaining period is still awaited.

Apart from GST, Industry is looking forward to more rate rationalisation announcements and reduction in custom duty on certain products specially to ensure smooth imports of raw materials. It is also expected that there may be announcements on possible hike in customs duty on dozens of products across sectors — including aviation, electronics, steel and industry to curb non-essential imports and further improve local production.

It is also expected that government may top up allocation for ongoing Production-Linked Incentive (PLI) schemes in the February 1 budget. Allocations for sectors that have seen high impact on the ground under active PLI schemes such as electronic manufacturing and IT hardware could be raised and new sector may be included in the programme to reignite manufacturing in India and boost exports, along with other measures to spur investments.

It is evident that the government has brought many changes in the GST landscape with respect to self-certification of audit reports, creating a compliance driven robust system by inter-weaving GST returns, e-way bills and e-invoicing system. However, there are still many other areas that the government needs to work upon in order to help achieve its target of ease of doing business in India. With an aim for stable economic growth and global prosperity, it is expected that the finance minister will consider expectations of India Inc to deliver a message of good economics and would present a comprehensive and growth-oriented budget.

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