Tax, Accounting, and Finance Chronicle

The Goods and Services Tax (GST), now a seven-year-old tax regime in India, has reached a notable level of stability, as evidenced by the consistent rise in collections over its journey. From an average monthly collection of Rs. 90,000 crore during its initial year in 2017-18, GST collections have surged to Rs. 1.68 trillion in 2023-24, marking an impressive 87% increase. This robust growth underscores the regime’s maturation and its crucial role in India’s fiscal landscape. However, further reforms are essential, particularly expanding GST to include petroleum products like petrol and diesel, reducing tax slabs, and lowering tax rates. Businesses are calling for these changes in the next phase of GST reforms—GST 2.0. Despite its progress, GST remains a work in progress, with its laws and procedures continuously evolving and being refined.

The 53rd GST Council meeting, the first after the recent elections and the first in 2024, convened on June 22, 2024, in New Delhi. With a hiatus of over eight months since the last meeting, this session addressed numerous issues, especially in anticipation of the upcoming Union Budget in July 2024, which will introduce significant legislative changes. Chaired by the Finance Minister, the council aims to simplify compliance procedures for taxpayers, making them less burdensome and more straightforward.

Following the 53rd GST Council meeting, the Central Board of Indirect Taxes and Customs (CBIC) issued 16 circulars, numbered 207 to 222, all dated June 26, 2024. These circulars clarify various aspects of taxability, place of supply, time of supply, and more, detailed in the ‘GST Update’ column.

In a significant legislative overhaul, India’s longstanding criminal laws have been replaced as of July 1, 2024. The three new laws—Bharatiya Nyaya Sanhita (BNS), Bharatiya Nagarik Suraksha Sanhita (BNSS), and Bharatiya Sakshya Adhiniyam (BSA)—supersede the British-era Indian Penal Code (IPC), Code of Criminal Procedure (CrPC), and Indian Evidence Act. The BNS comprises 358 sections (compared to the IPC’s 511), including 21 newly identified crimes. These new laws are expected to simplify the legal framework and facilitate easier implementation. The GST law heavily relies on these statutes, particularly concerning criminal offenses, prosecution, search, and arrest.

GST collections in India continued to grow in June 2024, albeit at a slower pace, with a year-on-year growth of 7.7%. This is a decline from the 12.4% and 10% growth observed in April and May 2024, respectively. Interestingly, the Ministry of Finance (MoF) has decided to cease the official monthly release of GST collection data, which had been a practice for the past seven years. Despite this, media reports indicate that the gross GST collection for June 2024 was Rs. 1.74 lakh crore. Additionally, the GST taxpayer base expanded to 1.46 crore in April 2024, up from 1.05 crore in April 2018.

Indirect Taxation in India: Then vs. Now

• Then: Multiple taxation systems with numerous levies and cesses.
• Now: GST represents ‘one nation, one tax.’
• Then: Cascading of taxes was prevalent.
• Now: Seamless input tax credit is available for all taxes.
• Then: VAT principles were fragmented.
• Now: A holistic application under GST is observed.
• Then: There were significant regional imbalances.
• Now: Revenue distribution is more equitable.
• Then: Barriers to inter-state trade existed.
• Now: There is a seamless flow of goods.
• Then: No e-way bills.
• Now: E-way bills are implemented.
• Then: Revenue collection was lower.
• Now: Revenue collection has increased.

Key Gains of GST Implementation

• Integration of indirect taxes.
• Online compliance mechanisms.
• Substantial reduction in tax cascading.
• Reduced physical interface with tax authorities.
• Enhanced transparency in tax implementation.
• Lower transaction costs and minimized unnecessary wastage.
• Decreased corruption.

Persistent Challenges and Issues

• Distorted input tax credit.
• Excessive and frequent compliance requirements.
• Outdated mindset of officers.
• Distrust between tax collectors and taxpayers.
• Absence of an appellate tribunal.
• Multiple tax slabs.
• Lack of coordination within the GST administration.

Significant Challenges Ahead

• Interpretational issues.
• Increased litigation and the need for an independent appellate forum.
• Alternative compensation mechanisms for states.
• Addressing fake invoices and rampant tax evasion.
• Corruption within the system.
• Divergent advance rulings.
• Levying GST on petroleum products and electricity.

Opportunities for Future Reforms

• Comprehensive tax reforms.
• Enhanced integration of the economy and contribution to GDP.
• Improved ease of doing business.
• Buoyant tax collection.
• A transparent, accountable, and just tax administration.
• Expansion of the tax base.
• Increased employment opportunities, both direct and indirect.

Strategic Suggestions

• Adopt a more taxpayer-friendly attitude and mindset.
• Implement a practical approach to handling taxpayers and non-compliance.
• Ensure smooth and seamless input tax credit.
• Provide a fair tax grievance redressal mechanism.
• Ensure faster and unbiased adjudication.
• Reduce the number of tax slabs and rates.
• Prioritize reforms in GST rates and procedures.

Notifications and Circulars Issued (Till 30.06.2024)

Most Litigated Issues in GST Over the Last Seven Years

• Fake invoices and frauds.
• Detention and seizure of goods and conveyances.
• Mismatch in GSTR-3B and GSTR-2A (input tax credit).
• Investigations and searches.
• Arrests and bail procedures.
• Transitional credit issues.
• Cancellation and restoration of registration.

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