Baby steps in GST

Updated on: Dec 06, 2021

Sweeter GST offer to States and relaxed filing norms for small units are welcome steps

The GST Council’s Monday meeting was able to make slight progress in two respects: simplifying the return filing process and taking a tentative step forward in resolving the impasse over compensation cess. The Centre struck the right note by accepting the demand of some States and raising the compensation payable under ‘option one’ from ₹97,000 crore to ₹1,10,000 crore. Under this option, States can borrow through a special window of the Reserve Bank of India and the entire principal and interest on the borrowing would be borne out of the cess. Option 2 involves the States borrowing the entire shortfall of ₹2,35,000 crore from the market , with the interest being borne by them. While 21 States have opted for the first option, the remaining (largely Opposition-ruled) have opposed the terms. The latter States should concede that the unprecedented economic crisis caused by the pandemic could not have been foreseen in 2017, when the 14 per cent annual increase in GST revenues to States was written into law. The Finance Minister has promised that all the dues of the States will be settled through the extension of the compensation cess beyond June 2022. The Centre has released ₹20,000 crore of compensation cess collected this year. Pragmatism would dictate that the opposing States accept the reality and not insist on an escalation to the dispute redress mechanism, which would delay and complicate the process for all States at a time when their need for funds is immediate.

The intent to move towards auto-populated returns and invoice matching can go a long way towards checking tax evasion and improving revenue collection. From next January, taxpayers would have to provide details required in the GSTR 1 return alone, regarding outward supplies. Other data pertaining to input tax credit will be captured from the suppliers and the net tax payable will be shown in the GSTR-3B return. These measures, when viewed along with requirement for businesses with turnover exceeding ₹500 crore to file e-invoices from October, show that the GST return filing system is trying to move back to its original design — of ease of compliance and improved collection.

Providing leeway to smaller businesses with turnover less than ₹5 crore to file returns on a quarterly basis from next year, is a good move. With almost 93 per cent of the 1.3 crore GST registered taxpayers having less than ₹5 crore of annual turnover, this move will provide relief to the majority of the businesses, cutting down their compliance costs to a third. However, there could be glitches for a few quarters. With small taxpayers filing quarterly returns, input tax credit could get blocked for larger taxpayers (who file on a monthly basis). Yet, the step may lead to larger companies coaxing their suppliers to be more compliant in filing returns. Overall, the recent changes could further the shift of entities from the unorganised to organised sector, so far stalled by loose implementation.

Published on October 06, 2020
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