India File

Is GST about ease of doing business?

Lokeshwarri SK/LN Revathy/A Srinivas | Updated on November 04, 2020 Published on November 02, 2020

Small units need compliance relief in Covid times   -  Reuters

Three years after its inception, compliance with GST procedures remains a headache for exporters, job workers and all MSMEs. BusinessLine reports

“The last couple of years have definitely not been easy. After dropping out of school, I did some odd jobs, saved some money and set up this unit with one machine (lathe). Within two-three years, I managed to install a second machine; just as things started to look up, the Government decided to demonetise high-value notes. That was the first blow. Before I could recover from it came the “one nation, one tax” system. They say “no looking back”, but we don’t see light at the end of the tunnel,” says Velmurugan, an entrepreneur, whose 10x10 shed is located in a residential locality in Coimbatore.

Considered one of the leading Tier-II destinations in the country for Micro, Small and Medium Enterprises (MSMEs), Coimbatore region has units dabbling in tooling, lathe work, fabrication, casting, machining, plastic moulding and allied fields, among others. These units are struggling with GST-compliance issues,including the recent shift to quarterly returns for small units and the extension of filing deadlines.

There are an estimated 30,000+ micro units engaged in undertaking job order works alone in this part of the country. There are 1000s of such units here. Close to 70 per cent of the units are at present on the verge of closure for want of orders. “No GSTIN, no order”, has become the order of the day, says J James, president of the Tamil Nadu Association of Cottage and Tiny Enterprises (TACT).

Devise a ‘GST loan’ for MSMEs

“Promoters of such ventures are unable to focus on the orders on hand; they have no separate department dealing with accounts, no expertise in GST matters and so on. Prior to the roll-out of GST, they could get their payments after deduction of tax at source and they were comfortable with the system. Further, job order is just a process, execution of a job, which does not involve purchase or sale of any item. So why should GST be imposed on job-working units?” asks James.

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While the tiny players brood over the new tax system, the ones dealing with textile and engineering spares and tool-making units seem to have come to terms with the new regime where units with turnover below ₹5 crore can file quarterly returns. This creates a mismatch between large and small units, where the large ones have to file on a monthly basis. Working capital flow can be disrupted in transactions between the two, as input tax credit refunds can be held up.

“As a company, we want to ensure compliance; it is convenient for both — my customers and suppliers,” says S Soundararajan, who is into manufacture of tooling kits.

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Asked if large corporates were pressurising such small and medium-scale units to fall in line with their system of filing GST returns every month, Soundararajan says, “they (large corporates) only made a friendly appeal, a request — it made sense. I do agree that for small companies, this could be a difficult proposition as a huge chunk of money gets blocked. But if one were to file every quarter, the net effect would be the same as we are only deferring/postponing the issue, not doing away with it.”

At present, a GST payer is required to make e-invoices, e-way bills, GSTR-1, GSTR-3B, ITC-04 (for job-work), annual return and annual audit (if applicable). Compliances like e- Invoices and e-way bills are expected to be adhered to on a real-time basis.

Says Pune-based chartered accountant Pritam Mahure: “After the Covid-19 onslaught, all over the world, GST/VAT compliances have been relaxed as the top-most priority is revival and support to the taxpayers. However, in India, we are witnessing exactly the opposite, as new compliances such as e-invoicing are being introduced.”

Exporters’ woes

Exporters are up against their own set of problems. Says Nishant Banthia of Magnum Casuals International Pvt Ltd, Chennai: “When we export our goods, we avail IGST refunds for all our input taxes. What reflects in the GSTN portal is only the collections that the supplier has made, according to the return filed by the supplier. Since the government is continuously extending the deadline for return filing due to the Covid-19 pandemic, the supplier is taking advantage of the relaxation and I am suffering because of this. He has already got the money, but he has not filed the return or paid taxes. We have to chase them saying, ‘please pay the GST, because only then will we get the refund’. We have to do the chasing on behalf of the government.”

Under the GST, two options are given to exporters. One, they can supply goods or services under bond or Letter of Undertaking without paying the IGST and claim a refund of the unutilised input tax credit. Two, exporters can pay the IGST and claim refund of the tax paid.

Sadanand (name changed on request), a tiles exporter from Bengaluru, is still awaiting the refunds on tax paid during the transition period in 2018. “At the transition time, 28 per cent IGST had to be paid on the exports,” he explains. “Government said that whatever tax was levied on exports, we could get refund immediately into bank account, after filing the GST returns. We have raised almost eight invoices for the early period of GST, out of which we have received GST refunds for two to three invoices. But refunds are pending for all the other invoices since 2017. About ₹14 lakh of money is stuck.”

Banthia, a readymade garments exporter to Europe and West Asia, has a unique problem. “A few exporters have been put in the risky exporter list,” says Banthia. “This list contains exporters who the government thinks are not genuine. I am one of the exporting companies who have been put in this category randomly, for no reason; the names are picked randomly by a computer algo. We were put in this category in February 2020.”

Exporters typically get three kinds of refunds — GST refund, drawbacks and licence value. “However, since February, we have not got our GST refund, drawbacks or licence value. In such troubled times, when export orders are less and workers have to be paid their salaries, the government is holding back payment due and causing further hardship,” points out Banthia. He has ₹1.5 crore worth of outstanding dues from the government. “How am I supposed to do business?” he asks.

High cost of return filing

Larger businesses, with an extensive accounting department, do not have any problem filing returns or adjusting the frequent changes in GST return filing rules, but small firms run by a single proprietor, sometimes using the e-commerce platform, are finding the return filing a big challenge.

Mahati Garments, which is a registered e-commerce seller in the market place segment, is a case in point. The proprietor of this firm says that a lot of problems are created due to sales returns. Since the supply is sometimes made to overseas clients, some portals give customers longer time to return their products. This results in products sold in the first month being returned only in the third month of a quarter. This requires an adjustment for return having to be done for the month when the sales was done and, in turn, results in higher payment to auditors.

The company pays ₹1,500 per month to auditors every month to file the supplies, the sales returns and the inward supplies or purchases. “I am an academician and so I am able to prepare the excel calculations myself. The auditors charge me for opening the portal three times and filing,” says the proprietor of the firm. A sum of ₹1,500 is the minimum amount charged by the auditors, it goes up to almost ₹5,000 per month, says the lady proprietor of the firm. The return filing fee accounted for around 5 per cent of profit in pre-Covid times, now it is many times that. “I can do the return filing, but I am little worried about the portal, as I am not a commerce graduate. If something goes wrong, we have to ask the auditor, so I am using an auditor.”

Many have settled down with the return filing system. Banthia thinks that frequent changes to GST are okay, exporters can adapt to it and adjust. Sadanand too has no problems with the return filing process and does not think that frequent changes in rules are, really speaking, a hassle. However, Mahure observes: “Relaxations given to small taxpayers such as quarterly return filing, delayed return filing, waiver of late fees, leads to hardship to large taxpayers as their right to claim input tax credit gets jeopardised.”

If possible, the matching can take place annually, as most financial statements are prepared annually and submitted with other authorities such as MCA and Income Tax Department. In Income Tax, the TDS details are tracked, not at the ‘invoice level’ but at ‘PAN level’, he adds.

E-invoicing has been introduced with effect from October 1, with a threshold limit of ₹500 crore. While this is welcome, the large majority of GST taxpayers would not be covered under the e-invoicing system.

Explains Bengaluru-based chartered accountant Mohan Lavi: “GST authorities are yet to fix the problem of invoices for taxpayers below the threshold of ₹500 crore. This set of taxpayers still use Form GSTR 3B to claim their input tax credit — a form in which there are no checks and balances to claim input tax credit. The menace of taking credit on fake invoices continues to bog down the authorities because of the open-ended nature of GSTR 3B. Some sort of a system is being planned from April 1, 2021. But so far, the GST authorities have been unable to walk the talk on matching of invoices.”

The GST Council needs to look into compliance issues arising out of the procedures. As Lavi says, a better dispute settlement system in the form of GST tribunals all over the country needs to be set up.

Let us not forget that GST was meant to ensure ease of doing business.

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Published on November 02, 2020
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