Context: January, named after the Roman god Janus, symbolizes looking back at past lessons while planning for the future. Reflecting on 2024, India’s fiscal policies show a worrying return to outdated practices.

Retrospective Taxation - A Harmful Habit:

• GST Council’s decision: The 55th GST Council’s recommendation of retrospective tax amendments undermines judicial decisions, including Supreme Court verdicts.
• Impact on businesses: Retroactive nullification of court rulings damages India's reputation for the rule of law and discourages investment.
• Historical lessons: Similar actions, like the Vodafone case, led to India paying international Investor–state dispute settlement (ISDS) awards, highlighting the need to avoid such policies.

The GST System - Challenges and Flaws:

• Revenue maximization over growth: The GST Council’s narrow focus on revenue collection leads to:
  • High tax rates suppressing demand and growth.
  • Complex exemptions, circulars, and show-cause notices.
  • A lack of a fair appellate system.
• Input tax credit issues: Denial of input tax credit for essential sectors (e.g., real estate) creates economic inefficiencies.
• High tax burden: Excessive GST on lease rentals, affordable housing, and infrastructure hampers economic progress.

Economic Impacts of High Tax Rates:

• Consumption and competition:
  • High taxes reduce consumption, while lower rates could boost demand and tax revenues.
  • Simplified and competitive tax rates could help Indian businesses compete with Chinese imports.
• Sectoral challenges:
  • Real estate: Multiple taxes increase costs, contradicting affordable housing goals.
  • Cement: A uniform 18% GST could lower infrastructure costs.
  • Hospitality: Standardizing GST rates for hotels and restaurants can drive growth.
• The Slide back to old practices:
  • India’s tax system (1950-1990) prioritized revenue over growth, leading to economic stagnation.
  • Signs of a return to these practices are evident in:
    • Rising imports from China ($70 billion in 2018-19 to $100 billion in 2023-24).
    • Declining manufacturing sector contribution to GDP (<15%).
    • Continued depreciation of the rupee.

A New Policy Framework for Growth:

• Reforms 2.0: After 1991, it’s time for the Reforms 2.0.
  • India needs to prioritize growth maximization, with taxes as a byproduct of growth.
  • Introduce empirical studies to evaluate tax impacts on consumption.
  • Simplify tax structures to encourage investment and growth.
  • Transition to a long-term fiscal policy (2025-2030) focused on a 9-10% annual growth rate.
• Urgency for change: The current system risks a downward spiral of low growth and high taxes, requiring immediate reforms.

Conclusion - A New Year, A New Vision:

• Just as individuals resolve to improve themselves, nations must do the same. The need of the hour is a bold fiscal overhaul, embracing growth-focused policies and respecting the rule of law.
• Without reform, India risks stifling its potential; with it, a brighter economic future is within reach.
• The GST Council and, indeed, the Central Board of Direct Taxes (CBDT) must now adopt a new policy framework that focuses on growth maximisation.