Urgent GST Reforms Needed: Insights from Delhi's Finance Minister

Introduction

At an ASSOCHAM event in New Delhi, Delhi's Deputy Chief Minister and Finance Minister, Manish Sisodia, voiced significant concerns regarding the effectiveness of the Goods and Services Tax (GST). He underscored the urgent need for substantial reforms within the current GST framework, pointing out critical areas that require improvement.

Key Recommendations for GST Reform

Abolishment of IGST

The collection of INR 1.81 lakh crore from traders is currently held as an advance tax in an escrow account, rendering it inaccessible to both central and state governments.

Real Estate Sector Updates

• GST on Joint Development Agreements (JDAs): Developers are subject to 18% GST on the deemed value of the constructed area that constitutes their share.
• No GST on Rent: Residential rent is exempt from GST, while commercial rent incurs an 18% tax.

Data-Driven Inspections

The Deputy Chief Minister called for the implementation of data-driven inspections, voicing his disappointment that GST has not effectively eliminated the "inspector raj." This oversight has contributed to inefficiencies and potential revenue losses.

E-Way Bill Reforms (2025)

• Validity Period: E-way bills must be generated within 180 days from the invoice date, with a maximum validity of 360 days.
• Two-Factor Authentication: E-way bill generation now requires OTP/DSC validation, a move aimed at reducing fraudulent activities.

Reflection on GST Implementation

He criticized the rushed introduction of GST, asserting that it was implemented prematurely without adequate preparation. He suggested that the term 'one nation-one tax' is misleading, as the system comprises “several taxes—one nation” merged together.

Need for Simplified Tax Structures

In discussions within the GST Council, he proposed that a simplified single tax rate could improve compliance. He noted the revenue growth in Delhi prior to GST implementation, where collections escalated from INR 31,000 crore to INR 48,000 crore through reduced tax rates.

IGST Liquidity Solutions

• Auto-Apportionment: IGST will be automatically divided between the Centre and the destination state within 48 hours of collection.
• ₹50,000 Cr IGST Transferred to States: During FY 2024–25, states will receive ₹50,000 crore from the IGST fund for disaster relief and infrastructure development.

Digital Enforcement

• E-Invoice Integration: E-way bills will auto-populate from e-invoices for business-to-business (B2B) transactions, significantly reducing manual errors.
• AI-Based Audit: GST officials will utilize AI tools to identify discrepancies between e-way bills and invoices, effectively minimizing the need for physical inspections.

Conclusion

The proposals to abolish IGST, bring real estate under GST, and adopt data-driven enforcement practices highlight essential areas requiring governmental attention and action. As the GST landscape continues to evolve, it is crucial for policymakers to engage with stakeholders to implement effective changes that enhance compliance and operational efficiency.