Union Budget 2024: What kind of indirect tax reforms should the govt opt for?

The newly formed central government will present the Union Budget on 23 July 2024. The expectation is to have a fiscally prudent budget with the implementation of reforms to modernize the economy. To fast pedal the expenditures in critical areas, the government will need to enhance tax collections and buoyancy through rationalization and simplification of tax structure and leverage automation and technology for tax administration. 

The Goods and Services Tax (GST) has considerably simplified the indirect tax structure. This new tax regime still has multiple rate structures and exemptions and has scope for rationalization and simplification. It is quite commendable that in the last seven years, consistent efforts have been made by the legislators to proactively reduce the interpretation-related disputes and ambiguities by way of regular clarifications, enhanced stakeholder consultations, and addressing sector-specific concerns as well as simplifying and streamlining tax compliances. The E-Invoicing system has also helped to formalize the economy and is now replicated by several countries. 

One of the key priorities from a GST standpoint is to enable effective dispute resolution by expediting and operationalizing GST Appellate Tribunals to reduce the burden of the High Courts of GST disputes. It is also expected to rationalize GST rates across sectors with a focus on the removal of inverted duty structure. Some of the measures for supporting working capital as well as growth could be to ease restrictions on input tax credits such as towards the creation of infrastructure (immovable property), employee-related services, refund of input tax credit on services and capital goods in case of inverted duty cases and possibly allowing cross-utilization of central GST credits across GST registrations of the same entity. As far as GST administration is concerned, the expectation from the stakeholders is streamlining parallel proceedings by tax authorities by central and state authorities, timely conclusion of audits, paperless invoicing, allowing API-based notice retrieval system, and integration of IRP, SEZ Online with the GST systems for seamless and real-time transfer of information. 

According to several export promotion councils, the Production Linked Incentive (PLI) scheme that advocates incremental production-based incentives has the potential to boost the country’s exports and propel innovation. To date, PLI schemes across fourteen key sectors such as electronics, pharmaceuticals, textiles, and white goods have been rolled out. It is anticipated to broaden the PLI scheme, and introduce a Phased Manufacturing Program (PMP) for new products and upcoming sectors. Some of these sectors are railways manufacturing, toy, leather and furniture manufacturing, agrochemical sector, shipping containers, value chain of Electric Vehicles (EV) such as lithium-ion batteries, EV spares or components as well as incentives for Green Energy Projects for transition to clean energy. 

As far as customs duty is concerned, steadfast measures have been taken with an objective of making the country the best in performance for global trade facilitation. These measures have been towards adopting digital transformation in customs clearance and significantly improving the dwell time, grievance redressal system, and risk management system through the use of AI/ML and Compliance Information Portal.  Against this backdrop, a need is felt to further simplify the tariff structure and streamline multiple exemption notifications. While the process of simplification has been attempted in the past, there is still some scope. This should also ensure fewer interpretational issues which will help reduce disputes and litigations.  The central government in the Budget FY2019 and FY2020 introduced amnesty schemes for central excise and service tax disputes, giving a chance to resolve past disputes. It is perhaps expected that on similar lines, a one-time amnesty plan for the resolution of legacy disputes pertaining to customs matters may end long-drawn litigations. Moreover, Free Trade Agreements (FTAs) makes the trade between the contracting countries hassle-free. The requirements for compliance for FTAs under the CAROTAR 2020 are elaborate and cumbersome for importers. It is expected that these requirements may be streamlined and simplified. 

Stable indirect tax policy and administration continue to be a key ask from businesses to ensure sustained business expansion, ease of doing business and attract more foreign investments into the country. Advanced technologies offer avenues for touchless and faceless administration with focus on managing tax risks and leakages thereby improving indirect tax collections and expanding the tax base. 

Views are personal. The author is Partner, Deloitte Touche Tohmatsu India LLP