The earlier indirect tax regime has been almost scrapped; most taxpayers have migrated to Goods and Services Tax, companies are charging GST to customers and the revenue department is reporting reasonably good monthly GST collections. But this does not mean the implementation of GST has been smooth.
There have been innumerable problems in filing returns. The revenue department was flooded by queries from hassled taxpayers in the first few months; these chaotic conditions made the GST Council roll back some of the critical features of the GST framework.
Unless these features are reinstated in an effective manner, the original objective — to expand the tax base, improve transparency and check tax evasion — will not be achieved. The architects of the GST framework built in three features — reverse charge, invoice matching and e-way bill — towards this end.
The reverse charge mechanism was one of the tools through which the tax base was to be expanded and those outside the tax net coaxed into the system. Under this, a business that bought goods or services from a supplier who is not registered to pay GST, was liable to pay tax on the purchase. While the tax could be set off later, it put pressure on businesses to ensure that all their suppliers were registered under GST.
But in the October meeting of the GST Council, reverse charge provision was suspended until the end of March 2018. This suspension appears quite unnecessary.
Since GST was implemented from July onward, most large and medium-sized businesses had ensured that all their vendors and suppliers registered with the GSTN in order to receive input tax credit seamlessly. Many small companies and service providers also registered with the GSTN, despite having a turnover below the GST threshold limit, in order to retain their larger clients.
If the reverse charge feature is not restored soon, larger businesses could revert to purchasing from vendors who do not pay tax. Smaller suppliers could also prefer to de-register from the GSTN once they find that it is no longer useful.
Another in-built check in the GST framework is the invoice matching system. The invoice level data of all the supplies had to be originally uploaded on the GSTN platform along with the GSTR 1 return. This return provided the basic data from which the GSTR 2 return of inward supplies was to be auto-generated and the final tax due in GSTR 3 was to be determined.
While the framework sounded wonderful, there were many impediments to its implementation — low level of computer literacy and lack of resources of smaller businesses, complicated returns with lack of clarity on product codes, and finally the inability of the GSTN to handle returns, corrections, and uploading of invoices.
Given the pandemonium around filing returns, the GST Council has asked all businesses to file just a summary monthly return (GSTR 3B). While businesses with turnover exceeding ₹1.5 crore have to file GSTR 1 monthly, those with turnover less than ₹1.5 crore have been asked to file quarterly GSTR 1 returns. The dates for filing GSTR 2 and 3 that enable matching of invoices, have not been announced yet.
The upcoming meeting of the GST Council is expected to put forth a simplified GSTR 1, and invoice uploading is also likely to be facilitated on a continuous basis.
While the simplification of forms is necessary, invoice matching also needs to be reinstated expeditiously. The leeway given to smaller businesses to file quarterly GSTR 1 returns has resulted in additional complications. While 58 lakh GSTR 1 forms were filed in September 2017, the numbers for October and November were just 21 lakh, implying that 63 per cent of taxpayers fall below the ₹1.5 crore turnover threshold.
It would be best to allow both small and large businesses to file GSTR 1 and upload invoices on a quarterly basis so that invoice matching becomes easier. GSTR 2 and 3 returns should also be filed by all regular businesses every quarter.
Of the three, the e-way bill is the closest to implementation. This is an electronically generated document that needs to be carried with every consignment that exceeds ₹50,000. The e-way bill can be checked at any point and it is mapped to the GSTR 1 of the taxpayer, thus acting as a check on tax evasion.
E-way bills have been made mandatory for moving goods inter state from February 1, but States have been allowed to implement e-way bills for intra-State movement of goods before June 1.
Despite protests from industry associations and tax consultants, the Centre should press on with the enforcement of these features. After all, better tax compliance will only benefit the taxpayer. - The Hindu Business Line