Transforming India's goods and services tax landscape

OVER TIME, INDIA has made significant progress on the ease of doing business index. However, there is still criticism from certain corners of the globe vis-à-vis India's tax system. In this context, Prime Minister Narendra Modi's announcement on the 79th Independence Day that the Goods and Services Tax (GST) would be reformed by Diwali holds promise. Here is a set of reforms required to vastly improve the GST structure and administration and ease compliance. If implemented, these could yield rich economic dividends. Pillar 1: Structural reforms

- NISHANT SHAH & YASH DESAI

OVER TIME, INDIA has made significant progress on the ease of doing business index. However, there is still criticism from certain corners of the globe vis-à-vis India's tax system. In this context, Prime Minister Narendra Modi's announcement on the 79th Independence Day that the Goods and Services Tax (GST) would be reformed by Diwali holds promise.

Here is a set of reforms required to vastly improve the GST structure and administration and ease compliance. If implemented, these could yield rich economic dividends.

Pillar 1: Structural reforms

One of the principles of GST is the pass through of tax credits with ultimate burden borne by the consumer. However, the existence of inverted duty structure has resulted in credit accumulation affecting the cash-flow efficiency of businesses. It is expected that the recent announcement will focus on liquidating such accumulations faced by select sectors. Though a bold step, any proposal allowing liquidation of accumulation of tax credit in relation to input services would be a game changer.

Resolving classification Issues: Whole move towards GST was to do away with the significant disputes on classification—between the nature of supplies being goods or services. However, multiple rates and tariff classifications cause hurdles for businesses when contested by authorities. Therefore, steps such as reduction of rates, simplification of the basis of classification and a benign approach vis-à-vis classification of supplies taxable at the same rate, need special attention.