GST transformation to enable India’s march towards a $5 trillion economy and beyond: EY Book

  • EY recommends including petroleum products, electricity, and real estate within the ambit of GST to make Indian manufacturing more competitive.
  • A world-class dispute resolution system is needed to aid in ease of doing business.

New Delhi, 30 August 2022: To salute the momentous journey of GST and to make it more simple and responsive to the needs of the businesses and government, EY has released a book, titled, GST Transformation: The Road Ahead. The book explores the implementation of reforms to make all facets of GST law and processes more efficient.  An efficient GST will help raise productivity and reduce prices for businesses, which coupled with a clear manufacturing strategy could attract global investments, create jobs, and make India a large manufacturing economy by 2025-26.

Sudhir Kapadia, Partner, Tax & Regulatory Services, EY India, said “Our book is an effort to capture the benefits and challenges of this momentous journey whilst also incorporating critical feedback and recommendations from all key stakeholders of this tax reform. As this reform completes 5 years, it is time to look ahead to deliberate and decide on necessary changes required to streamline and rationalize the five-tier tax rate structure, availing of input tax credits, and inclusion of the remaining items in GST. We believe that this book initiates a healthy debate on how we can collectively make GST fit for purpose to better enable India’s march towards a $5 trillion economy and beyond.”

The EY GST book recommends the policy measures required to reform GST hinging on four pillars i.e., revenue buoyancy, world-class dispute resolution, institutional strengthening, and enhancing the ease of doing business. In terms of tax simplification measures, there is a need for government intervention on the legislative front and regular notifications needed to avoid litigation. The book draws out a detailed discussion of having a world-class dispute resolution system and how it can aid in ease of doing business.

Further, the EY GST book delves into a sector-wise impact analysis and suggests the inclusion of petroleum products, electricity, and real estate within the ambit of GST, thereby widening the base of Indian manufacturing and making the rates competitive.

Some key sectoral recommendations by EY are:

  • For the automobile sector, as battery constitutes approximately 40% of the cost of EVs, EY suggests that the GST rate on batteries could be rationalized (with a lower rate of 5% instead of 18%) to make usage of EVs more affordable and commercially viable, thereby boosting its demand as well as supply.
  • For the MSMEs, the book suggests making a composition scheme for small businesses more attractive by relaxing conditions to enable them to register under GST. Allowing input tax credit to the extent of output tax payable will make the composition scheme more liberal, facilitate streamlining of tax credits and eliminate tax cascading.
  • The rate on mobile handsets and their parts under GST should be aligned with policy impetus to incentivize mobile handset manufacturing in India with an ideal rate of 5% or at best 12%. It is relevant to note the tax rate in the pre-GST era for mobile handsets.
  • To remove ambiguity around online skill-based gaming, EY suggests inserting a separate service entry titled “Online Skill-Based Games” with a rate of 18% applicable only on the platform fees/fees collected for the services provided by the platform operators and not on the prize pool contribution made by the respective users.
  • In the Virtual Digital Assets (VDAs) specifically the cryptocurrency sector, while no taxation has been announced under GST, the book suggests clarity on non-taxability under the current GST law, including futuristic framing of clear laws that are aligned to emerging international best practices, is the need of the hour.
  • To facilitate seamless input tax credit availability across all sectors and make Indian manufacturing more competitive, (i) petroleum products, particularly, ATF and natural gas to begin with, (ii) electricity, and (iii) real estate should be covered within the ambit of GST at the earliest. While electricity can be taxed at 5% uniformly across the supply chain, petroleum products at 28% and real estate (land and constructed building) at 12% with seamless credit eligibility, will help the country immensely by incentivizing investment and enhancing demand for consumption.
  • The EY GST book also highlights the various disputed areas where an express clarification by the lawmakers will go a long way in settling the matters and eliminating unwarranted litigation. Decriminalizing minor offences and providing forthright clarification on contentious industry (or trade) issues are also needed.

https://www.ey.com/en_in/news/2022/08/gst-transformation-to-enable-india-s-march-towards-a-5-trillion-dollar-economy-and-beyond

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