Is stricter GST compliance justified?

Through announcements made in the Budget and notifications in the recent past, GST compliance has become much more onerous for taxpayers.

Restriction of payment of tax via ITC

The most critical piece of GST legislation is around input tax credit (ITC) claims. A taxpayer can reduce their outgoing tax liability by the amount of tax they have paid on the inputs used in their business. But the simplicity of this principle ends here. There are several restrictions which have been placed on claiming ITC i.e., not all input taxes are eligible to be claimed.

Besides these restrictions that exist since the inception of GST, several other rules have been implemented which further curb how much ITC can be claimed by GST taxpayers. New Rule 86B which is effective from 1st January, 2021, has placed a restriction on setting off more than 99 per cent of tax liability from ITC where the value of taxable supplies (other than exempt supply and zero-rated supply) exceeds ₹50 lakh in a month.

With this provision taxpayers are likely to have some ITC remaining in their books. Though some exemptions to this rule have been provided, however, placing such a restriction increases the effort on compliance for taxpayers.

Additional condition to claiming ITC

The budget has amended section 16(2) of the CGST Act to include that a taxpayer shall be allowed to claim ITC only when the supplier has uploaded the invoice, mere possession of the invoice, receipt of goods and payment of the invoice shall not suffice.

Therefore, it is no longer sufficient to be self-compliant, the onus of ensuring that suppliers are compliant is also on the buyer. Conversely, if the buyer does not impose compliance on its seller’s, the buyer’s ITC claim will not be allowed.

GSTR-3B tax liability must match with GSTR-1 tax liability

GSTR-3B is used by taxpayers to report taxes due to be paid while GSTR-1 is the return of outward supplies. Where the liability declared in GSTR 3B is less than that declared in GSTR 1 in a particular month, the department may now proceed with the cancellation of GSTIN.

There might be some practical difficulties in implementing such a provision as there are a number of corrections which are made in GSTR 3B which may result in lower tax liability as compared with GSTR 1.

Excessive powers to the GST officer

Significant deviation between details of outward supplies between GSTR-3B and GSTR-1 or inward supplies between GSTR-3B and GSTR-2B which indicate contravention of Act, will lead to the department serving a notice to the taxpayer to explain why its GSTIN should not be cancelled. The taxpayer shall be required to submit a reply within 30 days of such notice being served to him.

The budget has substituted Section 151 of the CGST Act. Now the jurisdictional commissioner shall have the power to call information from ‘any person’ relating to ‘any matter’ in connection with this Act. This means a GST officer will be able to seek information from any person to proceed with a matter within the Act. This gives vast powers to a GST officer. Some of these powers may end up being used to the detriment of a taxpayer.

Risk of attachment of property of the taxpayers and associates

Where a GST return has been found to be incorrect during scrutiny or where ITC has been claimed fraudulently resulting in short payment of tax, the assessment officer can take permission from the GST commissioner and attach bank and properties of the taxpayer and even those of the Chartered Accountant of the taxpayer. This provision assumes a nexus between the CA and the business.

Risk management by the government has led to heightened burden of compliance

In the recent past, several reports have appeared of tax evasion and fraudulent ITC claims by taxpayers. To respond to these swindles, our tax administration has established somewhat complex compliance requirements. Taxpayers must now put strong systems in place as a contravention can lead to significant business disruption.

The government will benefit from further investments in technology that support taxpayers with growing compliance needs. All GST-related transactions must be captured in real time through e-invoicing. E-invoicing leaves a trace through government systems, where genuineness of transactions can be automatically verified as they happen.

The department must have a service-based approach where taxpayer confidence around compliance is not broken. Perhaps the government should bring in more data analysis to identify businesses or industries or regions where non-compliance is likely to take place. The government must also place incentives for timely compliance. Rewarding those who are compliant and offering relief in taxes to them.

It is easier to collect indirect taxes as they are paid when a transaction occurs; such taxes are not dependent on reporting of profit (loss) by the taxpayer. While there is ease of collection for the government, if there is a higher administrative burden on the business, the design of tax policies must be reviewed.

The revenue authorities must play a supportive role and not terrorise taxpayers. This also requires the department to take swift action where there are lapses and quick justice to the innocent.

Archit Gupta, Founder and CEO of ClearTax

(The author is Founder and CEO of ClearTax)

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