GST regime. Complexities in GST rules and amendments making it difficult for MSMEs to navigate: Amit Mitra

Kolkata, Feb 17 The GST regime has become more and more complex with the addition of layers of rules, notifications, forms and amendments to laws, making it difficult for any business, particularly the MSMEs, to navigate.

In a letter to Finance Minister Nirmala Sitharaman, Amit Mitra, Principal Chief Advisor to the West Bengal Chief Minister and Finance Department, said the labyrinthine regulatory structures have engulfed MSMEs in particular, dragging them to an abyss.

According to Mitra, 741 notifications have been issued till date, of which 395 are central tax notifications and 148 central tax rate notifications. There are as many as 178 prescribed forms in the GST regime; 65 sections of GST laws have been amended; 129 rules of central GST have been amended and 419 major changes have been made to GST rates on goods.  

All these complex compliances are making it difficult for MSMEs, who are on the verge of becoming informal again as they are unable to cope with the punitive regulatory structure, complicated compliances and potential penalties of high order.

It was, therefore, imperative to call a “special and exclusive meeting of the GST Council” to address the case of massive over-regulation and the current state of MSMEs, he said.

Increased compliances leading to higher costs, more complexities  

Drawing attention to what the Prime Minister had said to the Chief Secretaries of the States in January this year on focusing on ending mindless compliances and laws and rules that are outdated, he said, the GST regime today has become the exact opposite of that.

“I am sure you are shocked by these cases of over-regulation and what appears to be mindless compliances,” he said.

Businesses, particularly the MSMEs, find it very difficult to adhere to the various compliances required under the GST regime.

For instance, on the returns front, monthly returns are prescribed in GST for normal tax payers, with annual turnover exceeding Rs 5 crore. Besides, every registered entity has to submit a detailed statement of outward supplies made in a particular month for availing of Input Tax Credit. So, in effect, 24 return statements are required to be filed in a year (twice a month), besides the annual return.

On the registration front, the threshold exemption for registration for GST is annual turnover of Rs 20 lakh in a financial year (which is Rs 40 lakh for an exclusive supplier of goods). In practice, however, a person making an interstate taxable supply is mandatorily required to take registration from the first supply.

“Knowing the complexity of this, the GST Council in its 47^th meeting has given in-principle approval for inter-state supply of goods by unregistered persons. Yet, it is a tragedy that this has not been implemented till today by your government,” he said.

Besides, the GST rules mandatorily require invoices to include certain particulars. There is a list of 19 such particulars and it makes it quite difficult for MSMEs to meet these compliances.

“Every GST related compliance is required to be done on the GST portal. There is a a plethora of notifications and forms and compliances of rules and procedures which are required to be made. Obviously, such a complex task requires the engagement of accounting firms, increasing the cost of compliance burden much beyond the capacity of small businesses,” he said.

While the Prime Minister had in January this year said states must proactively act towards formalisation of MSMEs, what is happening on the ground is that MSMEs are on the verge of becoming informal again as they are unable to cope with the punitive regulatory structure, complicated compliances and potential penalties of high order.

“I fear that inequality of wealth, which pervades the country today, will also enter the GST regime. Only large companies that can afford to engage top accounting firms will remain in the GST system, while the middle and smaller businesses will slowly exit in whatever manner they can, under the fear of penalties and harassment,” he said.

So, while the genuine MSMEs struggle to cope with the maze of regulations, a few unethical entities have opened paper companies, conducted fake transactions and drawn Input Tax Credits.

COMMENT NOW