ADVANCING TAX CERTAINTY AND COMPETITIVENESS: A REFORM AGENDA FOR INDIA’S NEXT PHASE OF GROWTH

As India prepares for the Union Budget 2026–27, the moment calls for a decisive shift from incremental tax changes to deep, structural reforms in tax administration. In an increasingly competitive global environment, a predictable, efficient, and non adversarial tax regime is no longer merely an enabler of compliance; it is a strategic imperative for sustaining investment, enhancing competitiveness, and accelerating economic growth.

In our Prime Minister’s various addresses, he has rightly referred to the taxpayers as nation builders, and CII and its membership are fully dedicated to this.

The recent next-gen GST reforms have shown the appetite in the economy for rationalisation. In spite of heavy deductions in taxes in many sections, giving the benefits to the consumers, the growth has not been impacted. In fact, it has increased and so has the tax collection. This has clearly shown that the economy looks for more reforms, and the Government should accelerate the same.

Over the past decade, India has made commendable progress in rationalising tax rates, expanding the tax base, and deploying technology at scale. The introduction of GST faceless assessments, pre-filled returns, and data-driven enforcement has fundamentally reshaped the tax landscape. Yet, uncertainty arising from interpretational disputes, procedural bottlenecks, and prolonged litigation continues to impose significant costs on businesses and weaken trust between taxpayers and the administration. Addressing these systemic frictions must now become a policy priority.

A central pillar of CII’s reform agenda is strengthening mechanisms that provide certainty at the entry point of transactions. India must move towards a more collaborative approach to dispute resolution. Global experience demonstrates that structured mediation can substantially reduce litigation, especially in complex areas such as transfer pricing and valuation. CII has proposed a t ime-bound, independent mediation framework for tax disputes, delivering final and binding outcomes without exposure to penalty or prosecution. Such a mechanism would represent a paradigm shift, from adversarial enforcement to constructive resolution, while safeguarding revenue interests.

In parallel, the scale of litigation pendency remains a matter of serious concern. Over five lakh appeals are pending at the first appellate level under direct taxes, locking up substantial revenue and prolonging uncertainty for businesses. Targeted reforms, including prioritisation of high-value cases, expanded use of virtual hearings, and rationalisation of pre-deposit norms for stay, are essential to restore confidence in the appellate process.

Advance rulings have historically played a critical role in enabling informed investment decisions. While the transition from the Authority for Advance Rulings to the Board for Advance Rulings was intended to expedite outcomes, pendency remains high due to capacity constraints and competing administrative responsibilities. CII strongly recommends appointing retired High Court judges and experienced former ITAT members, alongside statutory timelines for disposal, to restore the credibility and effectiveness of this mechanism.

Transfer pricing remains one of the most dispute-intensive areas of direct taxation. The growing backlog of Advance Pricing Agreement (APA) applications underscores the need for enhanced capacity and process innovation. CII has proposed an ‘Accelerated APA’ framework, fast-track renewals for existing agreements, and a recalibration of Safe Harbour Rules to reflect current economic conditions. Together, these measures would lower compliance costs, reduce disputes, and align India’s regime with international best practices.

Complexity remains one of the biggest drivers of disputes and compliance costs. The multiplicity of withholding tax rates and categories has led to working capital blockages and avoidable litigation. CII recommends a rationalised TDS structure with fewer rates, appropriate exemptions for GST-compliant entities, and reconsideration of legacy requirements, such as issuance of TDS/ TCS certificates, given the availability of real-time data through Form 26AS and the Annual Information Statement.

Timely and transparent refunds are central to taxpayer confidence. Delays in rectifications, lack of visibility on refund status, and excessive withholding on interest payments to non-residents undermine India’s ease of doing business objectives. Greater system integration, automated interest computation, and seamless application of treaty rates can materially improve outcomes.

Under the customs law, the current three-year validity of advance rulings is inadequate for long-term business planning, particularly in capital-intensive sectors. Extending the validity to five years, with a clear renewal framework, would significantly enhance tax certainty and reduce disputes.

Litigation continues to tie up both revenue and working capital. CII recommends introducing a one-time dispute resolution scheme under the Customs Act, akin to the successful ‘Sabka Vishwas’ scheme. Such an initiative would help unlock legacy disputes, reduce compliance burden and allow both taxpayers and the administration to focus on current and future issues.

Aligning SEZ duty treatment with Free Trade Agreement benefits would restore parity, boost domestic manufacturing, and strengthen global value chain integration. Rationalising disqualification criteria, extending quality control order exemptions, and enabling access to incentives such as RODTEP (Remission of Duties and Taxes on Exported Products) to MOOWR scheme at par with SEZs and EOUs – would significantly enhance its attractiveness under the ‘Make in India’ initiative.

Digitalisation must move beyond portals to true system integration. CII envisions a digitally empowered customs ecosystem, where data flows seamlessly between businesses and administration. Introducing API-based connectivity for filing Bills of Entry and Shipping Bills, granting licensed GSPs controlled access to ICEGATE, and implementing a phased roadmap covering e-amendments, e-refunds, and e-adjudication would significantly reduce manual intervention and errors.

Customs tariff complexity also warrants review. The proliferation of exemption notifications has increased uncertainty and litigation. Pruning these notifications, simplifying the tariff structure, and undertaking sector-wise rate rationalisation would help the Indian Industry remain cost-competitive while ensuring policy clarity.

Similarly, procedural efficiencies, such as permitting consolidated appeals for identical customs issues across multiple Bills of Entry and automatic release of bonds and bank guarantees upon issuance of Export Obligation Discharge Certificates, would significantly reduce administrative friction.

Post-clearance compliance also requires attention. Importers are often required to manually amend Bills of Entry and pay differential duties, leading to delays and uncertainty. An online module for post-clearance amendments and payments, with recognition of TR-6 challans for GST credit, would streamline processes and improve ease of doing business.

At the same time, enforcement must be proportionate and predictable. CII has consistently advocated a balanced approach, where prosecution is reserved for cases involving fraud or willful evasion and not for clerical errors or interpretational differences. Freezing of bank accounts should remain a measure of last resort. Establishing dedicated forums for industry associations to seek advance rulings on sector-specific GST issues could proactively reduce disputes.

CII’s tax reform agenda for the Union Budget 2026–27 is anchored in a simple but powerful principle: a stable, fair, and efficient tax system is indispensable to India’s growth ambitions. Certainty, simplification, and trust must be the guiding pillars of both direct and indirect tax policy.

As India positions itself as a global manufacturing hub and a preferred investment destination, there is a unique opportunity to recalibrate tax administration from enforcement-led to trust based governance. By addressing litigation bottlenecks, embracing digital transformation, and rationalising tax structures, the Government can unlock growth, improve compliance, and reinforce India’s standing as a competitive, business-friendly economy.

Note: This article has been authored by Piruz Khambatta, Chairman of the CII National Committee on Taxation and Chairman & Managing Director of Rasna International. It was originally published in CII Policy Watch, Volume 14, Issue 1, January 2026.