GST 2.0 to throw open competitiveness, facilitate ease of doing business: Deloitte

India’s indirect tax regime is on the cusp of undergoing a “pivotal shift”—with the 56th GST Council meeting setting the stage for sweeping reforms to rationalise rates, make compliance simpler, and catalyse growth across industries, according to Deloitte.

“GST 2.0 marks a progressive step that reflects the government’s commitment to citizen welfare and industry growth,” the report reads.

For exports, Deloitte noted that getting rid of the contentious intermediary services provision will “unlock global competitiveness and provide a significant push to India’s Global Capability Centre expansion plans.” This move, according to Deloitte, makes India’s GST structure similar to the international norms and reinforces India’s position as a service-delivery hub.

Domestically, the government has prioritised transparency and agility by simplifying post-supply discount rules. According to Deloitte, eliminating the need for pre-agreed contracts and invoice-level linkages is expected to reduce the risks of litigation, simplify the issuance of credit notes, and free up working capital that has been previously tied up in supply chains. “It is a win for operational agility and financial clarity across industries,” Deloitte said.

Deloitte sees the government’s decision to expedite refunds as another game-changer. It emphasised that the resolution of inverted duty structures and the provisional sanctioning of 90% refunds will unlock “income tax credit more efficiently and reduce refund backlogs,” directly addressing working capital challenges that have persisted for a long time.

A more straightforward registration process also unlocks new opportunities for smaller businesses. Deloitte highlighted that these welcoming reforms will expedite the onboarding of MSMEs, cut down overhead costs spent on compliance, and empower rural artisans and entrepreneurs to foray into interstate markets without difficulty.

Deloitte has also welcomed the operationalisation of the GST Appellate Tribunal as “a major milestone” for dispute resolution. The tribunal will facilitate a quicker and more consistent forum for businesses to appeal.

At the outset, Deloitte believes that for different sectors, GST 2.0 will be “transformative”. Reduced taxes on food, essential goods, and consumer electronics will spur demand. It will also make margins better for SMEs, and will enable investment in the retail and food processing sectors. In the BFSI sector, the abolishing of GST on health and life insurance premiums will “directly support the government’s ‘Insurance for All by 2047’ vision.”

In the automotive sector, the rationalisation of GST rates and abolishing compensation cess will increase affordability and efficiency. However, Deloitte also issued a caveat that there needs to exist a mechanism for “transition of the accumulated compensation cess throughout the supply chain.” The timely implementation of such a mechanism, according to Deloitte, will be pivotal in mitigating the adverse impact on working capital requirements and ensuring that benefits are adequately passed on to end consumers.

In its report, Deloitte sees the energy and infrastructure reforms as a “clear policy shift” skewed towards renewables. Reduced taxes on solar, wind, and hydrogen technologies will expedite the adoption of clean technology. On the other hand, reduced GST on cement will make housing affordable to a wider section of society.

The tax cuts on medicines and medical devices in the healthcare sector are a “progressive step”, according to Deloitte, that increases affordability. However, Deloitte also warns that an inverted duty structure in the sector will continue to take its toll on working capital until refund formulas are expanded.

Deloitte has also exhorted businesses to make sure that there is a timely and transparent pass-through of benefits stemming from rate cuts to consumers, lest they want to face regulatory and reputational risks. Provisions of anti-profiteering are taking the GST structure towards a trust-based model.