Budget 2019: Expecting broad-mindedness in the broad-based GST


In the second anniversary of GST it is desirable that, a more liberal and commercially sensitive approach is adopted.

Fresh off winning a clear mandate in the national elections in May 2019, Modi 2.0 is set to present the first Union Budget of its second term. It is expected that this budget will be instrumental in setting the tone for administration, and conveying the seriousness of the Government to revamp business, which is reeling under the twin shock of a changing global trade scenario, as well as a slowing domestic economy.

Curiously, this budget will coincide with the second year anniversary of GST – which became the signature policy push of this Government, in its previous term. The setting up of a parallel body in the GST council may have taken away the sheen from the Union Budget as an indirect tax instrument – but there is no better stage than the Parliament for announcement of big bang reforms, which are need of the hour.

In the recent past, the Government has acted quickly in the face of changing circumstances through rationalisation of rates and timely extensions. At this critical juncture for Indian economy – addressing the challenge of slowdown in domestic consumption faced by industry, will provide a vital signal of confidence from the Government.

One of the options the Government may consider could be removing bottlenecks in the current GST structure, which are leading to operational costs.

The first point where the Government could really look to ‘take off’ is the haphazard tax structure applicable to Aviation Turbine Fuel (ATF). ATF continues to be taxed by Central and State Governments vide Central Excise and VAT laws, with rates varying widely between different states. As a result, input tax credit is not freely available causing additional outflow and undue tax burden on airline operators.

The aviation sector has traditionally been a highly cost competitive environment, and the onerous taxation is adding to tightening of belts in the segment. Further, the cost to the end passenger also increases multifold – which is neither in harmony with reviving the industry nor the Government’s goal of increased connectivity.

The liquor industry faces a maze of regulations and compliances with output being taxed under State Excise and VAT, while inputs are taxed under GST. Non eligibility of Credit is a persistent cost issue for the sector, in a highly regulated market. Enterprises in the alcoholic beverage segment are presently a significant contributor to the revenue pool, and have been making inroads into overseas markets. It is essential that the alcoholic beverage segment be brought under GST as well, for uniformity and ease in compliance. Such a change will significantly affect revenues of the State, but the Centre should start working towards it and align this appropriately.

A similar state of affairs exists in the case of other non-GST products, including electricity and petroleum. These products, which can be commonly termed as ‘universal inputs’ comprise a significant chunk of India’s economy, making it unsustainable to continue to exclude them from the ambit of GST. Non-inclusion of such major inputs inevitably leads to cascading of taxes and inflation in the economy, which is eminently undesirable.

It is expected that the Government on the second anniversary of GST would be well placed to undertake a fundamental reform to include such non-GST products. This will dispense with the ‘jet lag’, the sectors are stuck in.

Additionally, while the GST Amendment Act in 2018 took initial steps in liberalizing credit eligibility – businesses still feel that there is still a long way to go. Certain key inputs for businesses such as rent-a-cab, motor vehicles and construction of immovable property continue to be restricted, to the detriment of assesses. In addition, decisions passed by the Authority for Advance Rulings (‘AAR’) based on existing restrictions, cause further uncertainty in this sphere.

For instance, in a recent ruling by the AAR in West Bengal (subsequently confirmed by the Appellate Authority) it has been held that credit of motor vehicle purchase would not be allowed to an operator who is engaged in providing service of renting the same to enterprises. This interpretation, founded on an unduly restrictive interpretation of the law – could have wide ranging implications for operators engaged in the renting space.

Imposition of such restrictions solely serve to proliferate disputes on credit eligibility, which was a defining feature of the previous tax regime. It is desirable that under GST, a liberal and commercially sensitive approach is adopted to avoid a similar state of affairs. A broad based tax requires a decidedly ‘broad mind’ in approach .

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