Everything Business Leaders Should Know About GST Reforms
N R Badrinath, Chairman, Indirect Taxes Expert Committee, BCIC, 0
In an exclusive interaction with CEO Insights, N R Badrinath, Chairman, Indirect Taxes Expert Committee, BCIC, provides an extensive overview of India's GST framework and wider taxation system as they evolve to address the nation's changing economic objectives. The conversation encompasses numerous relevant subjects, including the incorporation of digital innovations such as artificial intelligence and data analytics into tax management, along with policy changes that promote exports and streamline trade processes under the "Make in India for the world" initiative. Below are highlights from the conversation.
How do you see the current system, especially GST, adapting to emerging economic trends like the digital economy, e-commerce and changes in global supply chains?
From an economic trends perspective, I perceive the current GST system as forward-looking, especially as the emphasis is not centered on government revenue generation. Instead, it appears more focused on stimulating demand and domestic consumption throughout India.
As the Prime Minister often stresses, the concept extends beyond ‘Make in India’. Likewise, India is concentrating not only on worldwide manufacturing but also on boosting internal demand. This represents the clear objective of GST 2.0 in this iteration.
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Regarding e-commerce, whether involving B2B, B2C, or C2C transactions, the compliance requirements and integration with other regulations have become well-coordinated across all transaction types. Therefore, I believe the formal economy's scope is expanding.
From a digital standpoint, GST is fundamentally a technology-driven law. Hence, there is no retreat from utilizing AI, machine learning, or other digital components in GST-related functions, which the Government is seriously pursuing moving forward.
What reforms are being considered for Customs duties and trade facilitation to boost India's export competitiveness and support the ‘Make in India’ initiative?
First, as I mentioned earlier, it’s about ‘Make in India’ for global markets, meaning exports are certainly a priority. Regarding the industry, there are numerous programs that clearly indicate exports are the primary focus, particularly MOOWR (Manufacturing and Other Operations in a Customs Bonded Warehouse). This is a framework where the customs duties I'm required to pay on imports are postponed until the finished products are completed and brought to market. That covers the domestic aspect.
Concerning exports, we have various programs, including SEZ (Special Economic Zone), EOU (Export-Oriented Unit), EPCG (Export Promotion Capital Goods), advance authorization, the Merchandise Exports from India Scheme, and several others listed in the Foreign Trade Policy.
All of these initiatives are designed to enhance the export capabilities of domestic companies. The clear message is that we must export products and services, not taxes.
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Due to the procedures we must follow under the regulations, there might be delays in receiving benefits, but there are definitely no tax components affecting supply chain costs before goods are exported from India. Additionally, there's the performance-linked incentive (PLI) scheme, an industry-specific initiative designed to boost exports.
How is the committee leveraging AI, ML, and data analytics to improve tax compliance and detect evasion?
Several significant advancements have emerged in this area. E-invoicing stands out as perhaps the most substantial initiative any nation has undertaken, considering India's vast market scale and the extensive number of registered entities. Additionally, the Government employs extensive analytics to identify tax evasion, enhance compliance rates, and engage with stakeholders to strengthen adherence to regulations. Furthermore, there exists deliberate and ongoing information sharing between GST and customs departments within the same ministry, as well as with CBDT, the registrar of companies, and motor vehicle authorities.
A smooth integration is taking place across all these departmental divisions. Meaning, the tax administration is becoming increasingly engaging for tax administrators, while taxpayers also face significant preparation requirements regarding the implementation of analytics and machine learning technologies.
What are the ethical considerations and potential trade-offs involved when using indirect taxes to achieve social objectives, such as discouraging the consumption of harmful goods?
In my observations, I think that beyond simply labeling these products or services as sinful, implementing elevated tax rates and more rigorous reporting standards would be the primary two approaches for addressing these particular industry sectors.
How is India preparing to handle international tax developments, such as the digital services tax and cross-border e-commerce taxation?
Again, this advocates for a holistic approach to tax administration that combines both direct and indirect taxation elements under the Ministry of Finance, rather than focusing solely on GST or indirect taxation.
For instance, regarding direct taxes, there was previously an equalization levy that India was the first country to eliminate. Therefore, this decision extended beyond international tax developments and digital services taxation, which equalization levies represent as a form of digital taxation similar to these concepts.
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The only comparable mechanism we currently have in GST is OIDAR (Online Information and Database Access or Retrieval). This tax applies when the service provider operates outside India while consumers like us are located within India, accessing information through digital networks. In business-to-business transactions, I become responsible for payment under reverse charge provisions. In business-to-consumer scenarios, the service provider has no alternative but to register in India and remit taxes.
This arrangement may not be particularly accommodating given current global developments. However, the equalization levy was eliminated, and I believe one primary reason relates to administrative complexity. Unless the industry begins promoting itself and demonstrating significant development within India, this approach presents considerable challenges. Concerning digital transaction taxation, OIDAR remains the sole mechanism under the GST provisions.
What is your leadership philosophy, and how are you instilling that philosophy through your efforts and actions?
From my position as the chair of the indirect taxes committee at BCI C, I focus on several key areas. First, I would prioritize guiding newcomers to the field, helping them develop their skills and knowledge more efficiently than previous generations. This mentoring aspect is crucial. Second, I would emphasize the importance of specialized knowledge and ensuring it reaches a broader audience. Third, my approach would center on serving our members' needs, as this is fundamental to BCI C's mission - everything we do should ultimately benefit our membership. Their requirements form the foundation of our efforts. In summary, my focus areas would be guidance for newcomers, putting members first, and sharing specialized knowledge.
Several significant advancements have emerged in this area. E-invoicing stands out as perhaps the most substantial initiative any nation has undertaken, considering India's vast market scale and the extensive number of registered entities. Additionally, the Government employs extensive analytics to identify tax evasion, enhance compliance rates, and engage with stakeholders to strengthen adherence to regulations. Furthermore, there exists deliberate and ongoing information sharing between GST and customs departments within the same ministry, as well as with CBDT, the registrar of companies, and motor vehicle authorities.
The clear message is that we must export products and services, not taxes.
A smooth integration is taking place across all these departmental divisions. Meaning, the tax administration is becoming increasingly engaging for tax administrators, while taxpayers also face significant preparation requirements regarding the implementation of analytics and machine learning technologies.
What are the ethical considerations and potential trade-offs involved when using indirect taxes to achieve social objectives, such as discouraging the consumption of harmful goods?
In my observations, I think that beyond simply labeling these products or services as sinful, implementing elevated tax rates and more rigorous reporting standards would be the primary two approaches for addressing these particular industry sectors.
How is India preparing to handle international tax developments, such as the digital services tax and cross-border e-commerce taxation?
Again, this advocates for a holistic approach to tax administration that combines both direct and indirect taxation elements under the Ministry of Finance, rather than focusing solely on GST or indirect taxation.
For instance, regarding direct taxes, there was previously an equalization levy that India was the first country to eliminate. Therefore, this decision extended beyond international tax developments and digital services taxation, which equalization levies represent as a form of digital taxation similar to these concepts.
Also Read: This Healthcare Leader Serviced the Poor for Just Rs.2
The only comparable mechanism we currently have in GST is OIDAR (Online Information and Database Access or Retrieval). This tax applies when the service provider operates outside India while consumers like us are located within India, accessing information through digital networks. In business-to-business transactions, I become responsible for payment under reverse charge provisions. In business-to-consumer scenarios, the service provider has no alternative but to register in India and remit taxes.
This arrangement may not be particularly accommodating given current global developments. However, the equalization levy was eliminated, and I believe one primary reason relates to administrative complexity. Unless the industry begins promoting itself and demonstrating significant development within India, this approach presents considerable challenges. Concerning digital transaction taxation, OIDAR remains the sole mechanism under the GST provisions.
What is your leadership philosophy, and how are you instilling that philosophy through your efforts and actions?
From my position as the chair of the indirect taxes committee at BCI C, I focus on several key areas. First, I would prioritize guiding newcomers to the field, helping them develop their skills and knowledge more efficiently than previous generations. This mentoring aspect is crucial. Second, I would emphasize the importance of specialized knowledge and ensuring it reaches a broader audience. Third, my approach would center on serving our members' needs, as this is fundamental to BCI C's mission - everything we do should ultimately benefit our membership. Their requirements form the foundation of our efforts. In summary, my focus areas would be guidance for newcomers, putting members first, and sharing specialized knowledge.