GST Council to take up far reaching compliance reforms at Thursday meeting | Economy & Policy News

The Goods and Services Tax (GST) Council is likely to examine proposals for reorienting the complex and technology-heavy indirect tax system to a more business-friendly one at its 57th meeting on Thursday. The Council is expected to shift its focus from rate rationalisation to simplifying compliance and reducing administrative burden on businesses.

 

After overhauling the indirect tax structure in September last year in the first phase of GST 2.0, the Council is unlikely to undertake any rate changes this time, barring clarifications. Instead, it is expected to address inconsistencies and ambiguities in the regime to ensure that its implementation is aligned with the principles underlying GST 2.0.

  

The proposals are the outcome of nearly nine months of deliberations with states, including three National Coordination Meetings and several working group sessions of state officials. The deliberations were based on data drawn from the GST system, with proposals examined prior to being placed before the Council.

 

Officials said that the GST system has become more mature since its launch in 2017. In the early years, the focus was on bringing businesses into the new tax system, stabilising revenue, and curbing tax evasion. However, the system now has much more transaction-level data, invoice matching, and technology to identify suspicious transactions. This means the tax department can increasingly target those trying to evade the levy instead of putting the same compliance burden on all businesses.

 

“This meeting could significantly revolutionise the whole GST ecosystem, and is expected to bring great relief to the industry at large. One should consider this as Phase-2 of GST 2.0, where the Council focuses on critical processes and structural changes, adding to the already simplified rate structure announced last year,” said Prashanth Agarwal, partner, PwC India. “The idea is to simplify critical processes, making them system-driven rather than officer-driven,” he added.

 

This change is also expected to reflect in GST enforcement rules. The Council is likely to consider a shift in the enforcement framework, with the threshold for launching prosecution proposed to be raised from ₹1 crore to ₹5 crore. A separate proposal seeks to remove the power of GST officers to arrest taxpayers, with any arrest requiring judicial authorisation.

 

A government official said only two states are opposed to let go the arrest provision, and that the Centre believes it will be able to convince them in the Council meeting.

 

“It is a settled fact that nearly 98-99 per cent of taxpayers are honest and compliant, yet the compliance burden, litigation exposure, and penal consequences designed for the remaining 1-2 per cent non-compliant elements are often borne by the entire business community,” said Vivek Jalan, partner, Tax Connect Advisory Services.

 

The Council is also expected to consider measures that would reduce the cost of doing business. These include protecting genuine buyers from tax demands caused by supplier defaults; allowing input tax credit (ITC) on more legitimate business expenses such as motor vehicles and group insurance; and permitting refunds of input-service credit in cases of inverted duty structures.

 

Faster refunds are another important part of the agenda. Sources said the government is looking at greater automation in processing refunds, including the possibility of releasing a large part of eligible claims without an officer having to manually process each of them. This could help businesses, particularly exporters, get their working capital back faster.

 

“As GST enters its next phase of evolution, the focus must now shift to reducing credit blockages, resolving inverted duty structures and rate anomalies, and ensuring timely refunds,” said Sameer Gupta, national tax leader, EY India. A more centralised and technology-driven administration, together with less punitive law and fewer classification disputes, can significantly improve certainty and ease of doing business, he said.

 

Agarwal noted that as GST enters its tenth year, these proposed changes signal the end of its implementation phase and a shift towards a simpler, more technology-driven tax regime.