Budget 2026: Navigating Global Challenges with Strategic Tax Reforms
As the Union Budget 2026 draws near, India's economic policymaking is unfolding against a complex and challenging global backdrop. Slowing trade growth, ongoing supply chain realignments, persistent inflationary pressures, and heightened geopolitical uncertainty continue to significantly influence investment and production decisions worldwide. In this volatile environment, India's fiscal and tax policy choices will play a crucial role in sustaining the nation's growth momentum while enhancing the resilience of the domestic economy against external shocks.
Indirect Tax Measures: The Cornerstone of Economic Strategy
Indirect tax measures stand at the very center of this strategic effort. Beyond mere revenue considerations, these policies directly affect business cost structures, operational efficiency, and the seamless ability of enterprises to operate across both domestic and international markets. Consequently, expectations from the forthcoming Budget are firmly centered on three pillars: simplification, certainty, and targeted relief measures that actively support and stimulate broader economic activity.
GST Reforms: Easing Working Capital and Enhancing Clarity
The 56th GST Council meeting marked an important milestone by signaling progress on a simplified two-rate structure, demonstrating the government's intent to create a more stable and transparent GST regime. Building on this momentum, Budget 2026 is widely anticipated to advance structural reforms aimed at strengthening business liquidity, reducing compliance bottlenecks, and improving the overall ease of doing business.
Working capital pressures have intensified, particularly for sectors impacted by recent rate rationalization. There is a strong and growing expectation that the inverted duty structure (IDS) refund mechanism will be extended to include input services and capital goods. Furthermore, permitting the provisional sanction of up to 90% of eligible IDS refunds would significantly alleviate liquidity constraints for businesses. This reform is especially crucial as several goods have migrated to the lower 5% GST slab, leading to an accumulation of input tax credit where procurements still attract higher tax rates.
Cross-border service providers have also faced considerable uncertainty regarding intermediary services. Divergent interpretations of the place of supply provisions have triggered substantial litigation, with disputes estimated at over INR 3,357 crore as noted in the 55th GST Council meeting. A clear legislative amendment aligning the intermediary framework with the general place of supply rules would help curtail these costly disputes and offer much-needed clarity to India's service exporters.
Process rationalization remains another cornerstone of effective GST reform. Post-supply discounts continue to pose significant interpretational challenges for businesses. Aligning GST provisions to recognize legitimate commercial discount arrangements—irrespective of whether they are agreed upon before or after the time of supply—and dispensing with the cumbersome requirement for invoice-wise correlation for post-supply discounts has been a long-standing demand from India Inc. Legislative amendments to address these practical concerns are eagerly awaited.
Customs Reforms: Simplification, Amnesty, and Efficiency
Customs policy continues to play a defining role in shaping India's trade and manufacturing ecosystem. In the current global environment, characterized by muted demand and rising cost pressures, calibrated reductions in input tariffs can provide immediate cost relief and bolster manufacturing competitiveness, particularly for export-oriented industries.
Although incremental rationalization has been initiated, the Customs tariff structure remains intricate and complex. Multiple duty rates and frequent amendments contribute to ongoing classification disputes and elevated compliance costs for businesses. Further simplification of duty slabs would enhance predictability for traders and significantly reduce administrative complexity.
Resolution of legacy Customs disputes represents another critical area requiring focused attention. The introduction of a structured amnesty or one-time dispute resolution scheme could help unlock substantial blocked capital, reduce the burden of litigation on both businesses and the government, and enable companies to redirect valuable resources towards expansion and productive investment. Complementary procedural enhancements—such as expeditious Special Valuation Branch clearances, deeper digitization of processes, and time-bound adjudication mechanisms—would further strengthen trade facilitation and lower overall transaction costs.
Conclusion: A Blueprint for Enhanced Competitiveness
Budget 2026 presents a significant opportunity to strengthen India's trade and tax framework through targeted, practical, and forward-looking reforms. A combination of streamlined Customs duties, effective resolution of legacy disputes, expanded IDS refund mechanisms, and greater procedural clarity within the GST system can collectively reduce business costs, ease working capital pressures, and improve the overall predictability of the tax environment. These measures would not only enhance domestic industrial competitiveness and support export growth but also send a strong signal to the global community about India's intent to remain a reliable, efficient, and business-friendly destination even amidst a challenging international landscape.
