Budget 2020: Market Expectations on Goods and Services Tax

In less than a week, the union budget for FY 2020 is scheduled for presentation and as D-day draws to a close, a number of industrial bodies from all kinds of industry verticals have approached the Government with their wishlist and recommendations. While the Union Budget is not isolated to the Goods and Services Tax, India’s biggest tax reform takes limelight in the time of an economic slowdown. The Goods and Services Tax (GST), took the nation by storm in 2017 and since then has seen some happy and some not so happy industry verticals. Will Budget 2020 help relieve some of the industry’s woes? Let's find out what are the expectations for Budget 2020. 

Expectations by sector
Over the last two years, rate cuts are the primary reason why the Government has witnessed a dwindling collection of GST revenue. The last financial year has already seen the Government struggling to meet its revenue targets. Economists have recommended a phased increase in GST rates to deal with the economic slowdown. Yet, a number of industrial sectors, who have struggled these past couple of years, have requested a rate cut. These include the automobile sector where things have been looking pretty grim in the last two years. The auto sector is looking forward to a rate cut in automobiles from 28 to 18%. Additionally, there is a possibility of exemption from customs duty of 5 per cent for lithium-ion batteries. 

The automobile sector is not the only one with high expectations from Budget 2020. As a part of the pre-recommendations for Budget 2020, the Healthcare Federation of India (NATHEALTH) has urged the Government for bringing in zero-rating GST for healthcare services and making it a priority sector to meet its long-term funding and financing requirements. In its pre-Budget recommendations, NATHEALTH has also called for building capacity in tier-II and III cities which will cater to the growing demands of quality healthcare in rural areas of India. The expectation is to focus on the incentives for medical value tourism, zero-rating GST on healthcare services and health insurance premiums. 

The hospitality industry has demanded some concrete announcements in the upcoming budget for faster GST repayment system. 9 of 11 major markets reported better performance in revenue per available rooms (RevPAR) and average daily rates (ADR) as compared to the previous quarter after the Government reduced GST from 28% to 18% for premium and luxury hotels with room tariffs of Rs 7,500 and above in September 2019. While this rate cut has brought the hospitality industry much sought relief, the demand for faster repayment of GST is yet to be addressed. Currently, this industry is struggling with GST payments, as enterprise customers have delayed payment cycles from a minimum of 30 days extending to 180 days. A number of businesses are funding payments through their personal savings or availing of loans to pay GST while awaiting their invoices to be cleared by customers. Faster repayment of GST can help resolve this issue. 

Several real estate players have demanded that the benefit of input tax credit (ITC) be reinstated and GST be charged at 12% along with an allowance for land cost at 33%. This is at par with the current rate of works contract services for government projects. Additionally, stamp duty should be subsumed into the Goods and Services Tax. 

Manufacturers of appliances and consumer electronics have witnessed stagnation this past financial year and are seeking lower taxes on eco-friendly and energy-efficient products and higher incentives for domestic manufacturing. Also on their wishlist is the waiving of customs duty on inputs imported. This recommendation comes from the Consumer Electronics and Appliances Manufacturers Association who recommend that a lower GST rate of 12% for eco-friendly, energy-efficient products like 4 or 5 star air conditioners and frost free or direct cool refrigerators will drive demand and increase the adoption of sustainable appliances by the Indian consumer. GST has been set at 18% for a majority of consumer durables products. However, categories like air conditioners and televisions above 32 inches are taxed at 28 percent. This adds to the total cost of the product, both at manufacturing and sale stages.

Are GST rate cuts the only expectation from Budget 2020? 
Rate cuts are only one of the significant expectations from Budget 2020. The first year of the new decade will see the introduction of GST 2.0 and several GST laws are likely to be tweaked in light of the revamped return filing system which will be effective from April 1st, 2020. GST rules may be altered to accommodate the new returns in form RET-1 or RET-2 or RET-3 along with annexures in ANX-1 and ANX-2. 

GST 2.0 will also bring with it an online refund process and will hopefully do away with the existing physical process that prescribes physical documentation. Taxpayers are hoping GST 2.0 will provide an automated system, and a streamlined digital filing process with minimal bureaucratic interference. Another significant expectation for Budget 2020 is the funds to enhance the use of technology in tax compliance including filing of GST returns, reporting transactions, communications by the department, etc. 

What else can you expect?
As per reports, the Centre is planning to restructure GST slabs and will discuss the same with State Governments after the presentation of Union Budget 2020 on February 1st, next month. The Centre and State Governments are likely to explore ways to manage a possible revenue shortage and GST compensation to the states from the next fiscal year. 

GST has been the biggest tax reform India has witnessed and since it's implementation in 2017, more than 1.04 crore taxpayers have registered under GST and are contributing to the growth of Indian economy. The average GST collection from the date of implementation July 2017 to June 2019 is Rs 99,886 Lakhs per month which shows that indirect tax revenue grew by 11.9 percent as compared to the pre-GST regime. 

While GST has been helpful in achieving India’s vision of  ‘one nation, one market and one tax’  taxpayers have faced a significant number of hurdles and hopefully, Budget 2020 can set in motion the path to resolving taxpayer issues.