It is that time of the year again as we get close to the eagerly awaited Union Budget 2022-23 to be announced on 01 February 2022. The said budget is eagerly awaited by the industry, businesses and consumers alike where the primary focus is expected to be inclined towards economic recovery, alignment with market expectations as well as specific impetus to small scale industries / MSMEs. 

Union Budget sessions have recently been reserved primarily to introduce customs related changes into the indirect tax framework and it is expected that the said theme will primarily continue with this Budget as well. On a GST front, the recent GST Council meeting in December was expected to cover several policy issues. However, the meeting only addressed the need for deferral of the rate change for textiles. While no policy changes from a GST perspective are expected to be introduced, it is not uncommon to see announcements linked to the implementation of key decisions taken at the GST Council meetings, in the Budget.

A detail of such key policy concerns which are recommended to be addressed, sooner rather than later, have been provided below:

(A) Credit accumulation issue- GST came in with the assurance of free and seamless tax credits across the entire value chain without any delays and losses. However, businesses have been grappling with the issue of credit accumulation which occurs owing to multiple reasons such as in-seasonal businesses or inventory build- up, projects with long gestation periods, inverted duty structure etc. Refunds of GST are also granted only under specific circumstances. 

As a result, it is recommended that following options could be looked at to reduce such enduring difficulties:

- Conversion of accumulated credit into tradable scrips;

- Allow cross utilization of CGST credit between different GST registrations of the same entity. Such recommendation is revenue neutral to the government and it could unblock crores worth of accumulated ITC;

- Grouping of multiple registrations within group entities for input tax credit utilisation for CGST - Group companies having multiple registrations across states often face issue of accumulation of credit in one state and cash outflow in other states due to specific business structures. It is recommended that such grouping be permitted, especially since the same will also be a revenue neutral measure. This is a practice commonly followed in Europe VAT laws and international guidelines on this may be adopted;

- Another aspect deserving attention includes permitting payment of reverse charge liability through input tax credit which is not a radical suggestion considering there are countries (Singapore, United Kingdom) which permit payment of reverse charge liability through input tax credit. 

(B) Refund on account of Inverted duty structure – While the GST council has set-up committees to look into the issue of inverted duty structure, the more pressing need is to allow refund of input credit accumulated on account of GST rate on input services being more than the output GST rate on goods/services.

(C) Issues related to e-commerce sector – With technological advancements and in the wake of new business models, e-commerce sector has come out flying in terms of providing a wider accessibility / reach to consumers and also enabling multiple sellers / small businesses to operate through such e-commerce channels. 

However, despite technological advancements, age old practices in the manner of conducting business are still expected. Companies are still expected to operate out of typical physical premises with traditional manpower set-up. Companies operating with rotational / minimal manpower as well as operating in shared spaces / co-working areas etc. are viewed unfavourably despite being well within the realms of GST law. Suspension / cancellation proceedings are being rampantly initiated which is causing significant hardship to such businesses, and is against the very motto of ‘ease of doing business’. A clarification on this front is long awaited to ease such unwarranted hardships and to align tax officials with the new mechanics of conducting business. 

There is also a specific need for parity between online (sales on e-commerce portal) and offline sellers as regards GST registration, where there is a mandatory requirement for online sellers to obtain registration despite low turnover thresholds which puts such seller at a competitive disadvantage (increased compliance burden) from an operational perspective as compared to competitors who undertake sales offline. Various alternate measures such as PAN based or Aadhar based authentication for such sellers and / or submission of monthly reports by ECO of sales made by unregistered dealers on the e-commerce marketplace etc. can be introduced. 

(D) Removing prohibition on availment of tax credits - Additional recommendations aimed at reducing cost for businesses by removing restrictions in availing GST input tax credits could also be considered. This has been a long pending ask of the industry. 

For instance, to keep pace with ever emerging demand and consumption needs, country needs significant investments in warehousing, logistics, factories, cold storages etc. However, Section 17(5)(d) of CGST Act prohibits availing of GST credit on inputs and input services used in construction of an immovable property, which significantly increases the cost of construction. Such restrictions ought to be removed which would encourage businesses to invest in new constructions, thereby triggering investment and generation of employment. GST is anyways paid on the rentals charged or goods supplied through the use of the infrastructure so created.

Similarly, prohibition on availment of tax credits on employee related insurance, outdoor catering, and transportation services etc could also be removed since these are essential business expenses and anyways get factored into the pricing of the output supplies on which GST is paid. 

(E) In addition, there are other measures that could be considered. ITC eligibility on CSR spends or donations towards COVID relief (which are part of working conditions and are mandatory in nature to ensure that safety protocols are followed as directed by Government) has also been a grey area and need prompt clarity since such CSR activities (such as providing COVID-19 related equipment’s like PPE Kits, sanitizers, oximeters, oxygen canisters, medicines etc. to employees) are necessary to ensure collective wellbeing, which in-turn has a direct nexus with getting the businesses back on track and ensuring economic growth. 

Implementing the above measures would not only improving the ease of doing business but more importantly result in increased cash flows in the hands of business by converting dead assets in the books / costs into meaningful working capital which in turn could improve ROI and benefit our economy.