The Goods and Service Tax (GST) is a comparatively new law in force that is triggered with various changes till it enters the area of perfection. It is natural to have changes and amendments in the law for a decent number of years after its application.
However, GST has witnessed so many amendment times and again that its original structure which was kept by the Parliament before the country seems to be taking new shape and a new variant of GST, considering the recent amendments and approach of amendments in the law, is quite brainstorming as well as full of complexities as far as taxpayer is concerned.
Here are some structural changes which I feel should be at the core of the discussion for smooth compliance with GST law:
Ensuring free flow of input tax credit
Recently various input tax credit (ITC) restriction measures have been introduced to fill up the loopholes, which fraudsters are taking advantages of.
The first and foremost change is the restriction in the claim of ITC. When an invoice is not furnished by the supplier or vendor, the ITC available before the amendment was 10 percent which is now replaced with 5 percent. Earlier, if you have made a bonafide purchase and the supplier failed to furnish the invoice details, a claim of 10 percent was allowed. The ITC will now be 105 percent of the invoice furnished. This rate is continuously reducing as ITC was 20 percent before, 10 percent and now it’s 5 percent . It can be said that this limit might abolish soon. This will hamper working capital requirement in small taxpayers resulting in the slow growth of the economy.
A threshold amount of Rs 25,000 to Rs. 50,000 per month shall be allowed to be claimed additionally (above 2A/2B) along with above-said rule so that not only fraudsters can be stopped in time but small bonafide businessmen are also safeguarded adequately.
Cash crunch versus handholding of SME
Rule 86B is newly inserted that provides no ITC above 99 percent of Electronic Credit Ledger can be utilised by the taxpayer. This rule applies in cases where taxable supplies, i.e. turnover other than exempted supply of zero-rated supply above 50 lakhs per month. (These will majorly affect small and medium enterprises ranging from Rs 5 crore annual turnover to Rs 10-20 crores per annum)
It is compulsory now to pay 1 percent in cash of Electronic cash ledger credit available. There are certain exceptions to this rule. Yet this provision will unnecessarily defeat the purpose of seamless credit being promised by the government at the time of the launch of GST.
More automation than manual
India is a vast country and more online automated processes and systems are required with ease of implementation. However, recently it has been noticed that complexities have been increased. Some of the noticeable manual powers given to GST Officers are:
- System-based registration had a time limit of 3 days earlier which is now extended to 7 days from the date of filing the registration application.
- Where the applicant has not opted for Adhaar verification and the department feels necessary to have physical verification for granting registration--the limit was of 7 days which is now extended to 30 days’ time limit.
GST registration cancellation/suspension powers to officers
The Goods and Service Tax department has the power to suspend the GSTIN of a holder in the following small irregularities:-
- If the GSTIN holder avails credit more than admissible under Rule 16 of CGST Act, 2017
- If there is variation in the taxable value and tax payable under GSTR 3B and GSTR 1
- If Rule 86B is violated department may cancel the registration.
The most draconian part is: there is no Concept of Opportunity of being heard before suspension to the GSTIN holder to safeguard its registration. It is a very crucial situation where the registration gets cancelled. Every business can fight against the raised orders of penalty and interest, but a registration being cancelled is a big issue as the supply will stop, the whole business will be stopped and for the same, no opportunity of being heard will be given is a grey provision.
Simplify GST return structure
The blocking of GSTR1 if GSTR3B is not filled. It was observed by the government that GSTR1 was filed by the taxpayer as the customer was getting credit and when it comes to payment of GST under GSTR3B, taxpayers were avoiding filing the return. Hence, Rule 59 was amended from blockage of E-way bill to blockage of GSTR1 as well.
Such provision applies when a monthly return is not filled GSTR3B for 2 months u/s 37, a quarterly return is not filled GSTR3B for the previous quarter and the Rule 86B is applicable-GSTR 3B not filled. There is a huge need to simplify this return process so that heavy compliance and the burden on the part of the taxpayer can be minimised.
Changes concerning E-way bill
Earlier there was a provision that the E-way bill will be valid 100 km/day. That is before a recent amendment on every 100 km one day (24 hours) was provided, but now this limit has been made 200 km/day. This provision has made business difficult as now we need to travel more in less time and this structural change is very crucial for smooth functioning
Rationalisation of GST rates
GST, when introduced, was promised to be One Nation One Tax but due to the federal structure of our country, we were gifted CGST, SGST, and IGST. Moreover, tax rates are not one. These range from 3 percent to 28 percent in various slabs. Simplification in the form of a lower number of tax rates to ensure easement in the practical world is the need of the hour. The government may consider deriving two rates by merging 5 percent, 12 percent, and 18 percent.
Widening of GST base
A large part of government machinery is focused on increasing revenue collection from an already registered person. However, a substantial section of business (especially where cash is the major dealing mode) are still out of the ambit. The government should incentivise new registration so as to boost the tax base.
We may conclude that regarding the major aspects stated above, it was clarified by the government that such actions are only applicable to the taxpayers who are using malicious ways to save tax under the act. But none of the provisions had any kind of clarification that other genuine taxpayers will be safe.
It can be said that the government intended to clear the circulation of fake invoices and dummy business taking action but the genuine registered taxpayer will have to pay more attention to the provisions and compliances rather than doing business. Such amendments do not have revenue generation for the government but only rules and restrictions that will create a fear among the taxpayers.
The writer, a qualified CPA (Ireland) and Fellow Chartered Accountant (India) is founder and chairman, HostBooks Ltd
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