GST 2.0: Six key reforms that could shape the second decade of tax regime

New Delhi, Aug 29 (IANS) The 57th meeting of the GST Council could mark an important phase in the evolution of India’s indirect tax regime, with the focus expected to move beyond rate rationalisation towards reducing litigation, strengthening input tax credit protections, resolving legacy credit issues and using technology to create a more predictable compliance framework, a report said on Saturday.

According to Manoj Mishra, Partner and Tax Controversy Management Leader at Grant Thornton Bharat, the meeting assumes significance as the Goods and Services Tax enters its tenth year. He said the GST Council’s next phase of reforms should focus less on expanding the tax base and more on building trust, certainty and simplicity into the system.

One of the key areas requiring attention is the reduction of GST litigation. The Supreme Court’s decision in the Gameskraft case has become a major point of concern for the online gaming industry, with demands estimated at nearly Rs 2.5 lakh crore following the court’s treatment of online gaming, fantasy sports and casino activities as betting and gambling and its decision to sustain GST on the full-face value retrospectively from July 1, 2017.

While review petitions have been filed against the judgement, the issue has also raised a wider policy question for the GST Council. The industry had for years paid GST on platform fees at 18 per cent, relying on the prevailing legal interpretation that distinguished games of skill from games of chance.

Mishra said Section 11A of the CGST Act could provide a mechanism to regularise tax positions arising from generally prevalent trade practices.

Another major reform area is input tax credit. Under the existing framework, a recipient’s eligibility for ITC can be linked to whether the supplier has deposited the tax with the government. This has become a contentious issue because a compliant purchaser has limited ability to monitor or control a supplier’s tax compliance.

The Council could consider a legislative safe harbour for recipients who hold valid tax invoices, have actually received goods or services, have made payments through banking channels and have acted without collusion. Such protection could help reduce disputes and reinforce the seamless credit mechanism that is central to GST.

The transition from compensation cess is another issue likely to require a clear resolution. Following the recommendation to discontinue compensation cess on specified goods from February 1, 2026, businesses are looking towards clarity on credits accumulated under the earlier regime.

The meeting could also revive discussions around bringing petroleum products under GST. Petrol, diesel, aviation turbine fuel and natural gas remain outside the GST framework, resulting in multiple layers of taxation and embedded costs across manufacturing, logistics and transportation.

The rapidly changing digital economy is another area where businesses are seeking greater clarity. The application of Section 9(5) of the CGST Act to app-based passenger transportation has generated uncertainty as platform-based business models evolve.

The GST Council could consider establishing a clear functional test based on the actual degree of control and involvement exercised by a platform. Clarity is also needed on whether such operators must obtain GST registration in every state where drivers operate or whether a centralised compliance mechanism can be permitted.

–IANS

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