NDA 3.0: Coalition government unlikely to impact GST reforms, power of tax officers may be reviewed, experts say
However, certain key issues such as rate rationalisation may be pushed to the back burner while issues such as placing checks and balances on the powers of tax officers may come back to focus.
Sudipta Bhattacharjee, Partner, Khaitan and Co said, “The broad direction of GST reforms should remain unhindered even with the new coalition government as GST reforms as an agenda has historically had support across party lines. However, some aspects of reform such as checks and balances on the powers of tax officers might get pushed forward whereas potentially inflationary reforms such as GST rate rationalisation might get put on the back-burner, keeping in mind ‘coalition dharma’.”
Powers of the GST officials to make arrests is a contentious issue that is currently pending judgement from the Supreme Court. A bunch of petitions challenged the constitutional validity of section 69 (i.e., power to arrest), 70(1) (i.e., power to summon individuals to furnish proof and produce documents). In May 2024, a bench led by justice Sanjiv Khanna reserved judgement in the plea.
The GST Council’s meeting scheduled to be held on June 22 is the first meeting since the formation of the coalition government at the Centre. It is also the first meeting of the council since 28 percent GST was imposed on full face value of the bets placed on online gaming platforms. Online gaming companies are gearing up to make their case before the council.
The current NDA government at the Centre was formed in coalition with the Telugu Desam Party (TDP) and the Janata Dal (United) after the BJP failed to secure a majority on its own as it fell short of it by over 30 seats. As a result of this, a shift is anticipated in the government’s approach to taxation and other fiscal policies.
“It is understood that due to the coalition nature of the new Government, it is possible that there may be shift in the priorities of the Government,” said Ankit Jain, partner at accountancy firm Ved Jain and Associates.
The new government's focus is expected to be on enhancing compliance. There will be amendments to the Central GST Act to align with recently passed GST rules,” said Rohit Jain, Managing Partner, Singhania & Co.
Jain noted that these amendments to rules will push for lesser scrutiny from tax officers. In late 2023, the government introduced a slew of reforms to the GST rules to enhance ease of doing business. For instance, in October 2023, the GST Network developed a functionality to generate automated intimation which enables the taxpayer to explain the difference in Input tax credit available, thereby reducing human interference.
Online gaming question:
“The coalition government has the chance to reconsider the current cold war on online gaming, which includes an excessive 28 percent GST levy. Do they want to nurture a valuable industry that is simply an extension of the rapidly digitising economy? The government can lower taxes on the sector, watch it flourish and reap the rewards through growth,” said Russell A. Stamets, Partner at Circle of Counsels.
From October 1, 2023, 28 percent GST was imposed on the full face value of online gaming bets by the GST Council, which promised to review the levy after six months. The industry has been seeking to have the 28 percent GST calculated on the gross gaming revenue instead of the face value of bets.
The biggest blow to the gaming companies came when the GST Council imposed the tax retrospectively (with effect from the past). Further, as per the Council’s interpretation of retrospectivity, all online games involving bets played between August 2017 and 1 October 2023, irrespective of skill or chance, needed to pay a GST rate of 28 percent on the full value of the bets placed, as they fell under the category of gambling.
As of December 2023, these online gaming companies have been slapped with 71 showcause notices involving alleged GST evasion of Rs 1.12 lakh crore in 2022-23 and the first seven months of 2023-24, excluding interest and penalty. Since the notices were issued under section 74, which empowers the department to impose a penalty of up to 100 percent of the tax demand, it may take the amount to over Rs 2.3 lakh crore, including interest.
These notices have been challenged in the Supreme Court through a bunch of petitions. The court is likely to hear the pleas in July.
Adarsh Somani, Partner at Economic Laws Practice said “The 28 percent tax on online gaming has been contentious and is already impacting gaming startups. While the coalition government cannot unilaterally drive change, the GST Council had indicated a possible review after the elections, keeping hopes alive.”
Bhattacharjee, who is a lawyer representing some of the gaming companies in Supreme Court, noted that there is a optimism from the new government with respect to rolling back the retrospective GST demands against online gaming companies.\