Faster registration, easier refunds: Reform rollout with GST 2.0

NEW DELHI: The GST Council is expected to announce a range of significant reforms, aiming to streamline processes such as expediting registration, simplifying refunds, and enhancing input tax credit mechanisms. The proposed changes also include defining several services more clearly, ensuring that trucks only face inspection for valid reasons, and moving towards decriminalization.

The reform package, known as GST 2.0, will be presented by Finance Minister Nirmala Sitharaman during the council meeting on Wednesday. The Council will prioritize minimizing bureaucracy, leveraging technology, reducing litigation, and lowering transaction costs for businesses, particularly smaller ones. The system of deemed acknowledgement is set to be introduced, where refund or registration applications will be obliged to receive a response within ten days.

The Council will avoid modifying tax rates in this phase, instead opting for an annual revision model effective from April 1. Additionally, the Central Board of Indirect Taxes and Customs (CBIC) is developing a framework to facilitate small businesses operating across multiple states, enabling them to interact exclusively with the central agency. This framework, which will undergo public consultation, aims to introduce a system of faceless audits, inspections, and adjudications led by the central government.

The most notable change proposed is the elimination of arrest powers held by courts, which will now be transferred to officials, leading to the resolution of disputes through civil penalties rather than criminal charges. The plan involves removing nine offences from criminal law and softening 24 others while retaining 11. The prosecution threshold is expected to be raised from Rs 1 crore to Rs 5 crore.

The sentencing review aims to remove mandatory minimum sentences, with the maximum term in the middle band reduced from three to two years. Late fees for small taxpayers may also be waived.

E-way bills, which have been instrumental in tracking goods transportation, will have stricter regulations to prevent unnecessary stops for drivers who may lack detailed consignment information. This measure aims to accelerate transportation, reduce harassment, and protect sensitive consignments, such as semiconductors. Meanwhile, registration processes are expected to be simplified, with 60% of applications to be approved within three days.

The form will be revised to allow businesses to apply for registration once, irrespective of the number of states in which they operate. Changes related to alterations in directors, partners, or addresses will be made more straightforward, focusing solely on the principal place of business. Suspension grounds for registration will be minimized, and suspension for failure to file returns will be lifted if rectified within a month.

Closing the registration process is also set to be simplified, starting with small taxpayers and potentially becoming part of the closure application.

Furthermore, the GST Council will explore extending refunds to businesses like those involved in plant machinery, which often accumulate tax credits over lengthy periods. This move aims to alleviate cash flow issues and reduce working capital requirements for long-gestation projects like semiconductors and refineries. Entities currently excluded from the refund chain, such as outdoor catering, health and life insurance, and telecom towers, are proposed to be reintegrated.

For businesses with management contracts, such as hotels or gyms, credit will be allowed, easing the burden on customers. A revised definition for services will be discussed, allowing the supplier and recipient to be the same entity, simplifying the process for exporters who utilize branch offices.