Demand for review of tax structure to transform the economy

New Delhi Officials working in the legal framework of Goods and Services Tax (GST) and Customs as well as tax administration need to be prepared to deal with changes in the economy, such as the expansion and growth of the circular economy. In energy, Vivek Johri, chairman of the Central Board of Indirect Taxes and Customs (CBIC), said.


To that extent, there may be a need for a review of the tax system, Johri said in an interview about how the system could evolve in the medium term as the country strives towards becoming a developed economy.

Johri said the movement of goods across borders for repairs and renovations is increasing as businesses try to reduce their carbon footprint by using recycled items. Furthermore, with the explosive growth in technology, it may be possible to trade designs online across borders for later local manufacturing through 3D printing. These trends raise difficult questions about the extent of service and goods involved in the transaction and the volume of manufacturing and recycling.

Johri said that the tax administration should be ready for these economic changes.

“Determining what is a taxable supply, where to classify (a product or service) in your tariff to ensure that leakage does not occur, what is the rate that applies, and how you can calculate the value of these transactions.” How will the purpose of taxation be determined,” Johri said while explaining the issues involved in addressing the changing trends in the economy.

“As far as this trend goes, tax laws and procedures have to be framed, and more importantly, the authorities need to be prepared,” he said. So, you need to build capacity for your executives to understand and deal with these new businesses,” Johri said.

He added that in the recycling industry, more import or export of goods for repair, repair or remanufacturing can be seen. Presently, these are happening on a small scale. He said that these are temporary imports to the country which are repaired and sent back. Similarly, exports also take place on highly specialized equipment that is not manufactured in India but is sent to the original supplier for repair, and they are returned. In some regions, some of the precious metal has to be recovered from certain types of goods, re-melted and then converted into a shape. “Moving towards a circular economy, we will need to think more carefully about dealing with the issues involved,” he said.

The Chairman also said that technological disruptions like 3D printing, Fourth Industrial Revolution, drone delivery of goods, and changes in settlement of business transactions apart from digitization of payments are trends for which the tax administration has to prepare.

Experts said that along with policy initiatives towards green economy to reduce consumption of fossil fuels in favor of clean energy, the revenue collection strategy of the government may also have to change. Last year, India announced the Green Hydrogen Mission to make the country a leader in this field. However, experts also said that more changes would be needed in terms of ease of doing business.

“Since we are betting big on green hydrogen, for which a mission has been launched, we need to ensure that investment is facilitated, including laws relating to adjacent land parcels, in setting up green hydrogen plants in special economic zones. is required. this field. It is practically impossible to get such a large single land parcel in India,” said Saurabh Agarwal, tax partner, EY.

In order to promote reduction in carbon emissions, the GST rate applicable to hybrid vehicles, which do not enjoy the concessional 5% GST rate applicable to electric vehicles, but are taxed at the rate applicable to internal combustion engine vehicles, has been reviewed. It can be done, Agarwal said.

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