The amendments put through last week are well-intentioned but they will lead to a fresh set of problems
The amendments to the GST law announced by the GST council last week show that the Government has its ear to the ground. But in its zeal to find a quick-fix solution to the teething troubles, it could be doing more harm than good.
The council needs to think through the consequences of its actions before pushing through changes to the law. While allowing assessees with turnover less than ₹1.5 crore to file quarterly returns will help declog the GSTN, it is going to cause undue hardships to larger enterprises. The GST system is based on seamless invoice matching between the supplier and the receiver and this cycle could be disturbed by this change.
Similarly, it is hoped that the move to roll back reverse charge mechanism (RCM) is only temporary and is reinstated soon. Else the GST will be unable to achieve its objective of widening the tax base and halting creation of black money.
The GST system will work wonders once fully implemented but the original framework should not be tampered with. For now, the Centre can turn its energy on fixing the issues with the GSTN (the IT backbone of the system) software. The number of GST returns filed so far show that not all registered taxpayers are compliant.
Exempting some businesses from paying up monthly will not help in the short term as the leeway is applicable from the October 2017 quarter. Smaller businesses have to somehow wade through the filing of the full returns for July, August and September before they can get relief. With the July returns being filed now, it promises to be one arduous journey for small taxpayers before they are through with the 9 returns for the September quarter.
That said, the filing of returns from October onwards is likely to get easier for all businesses since they would have already gone through the rigour for three months. The GSTN would also have ironed out the glitches. Exempting smaller businesses from filing monthly returns from October therefore makes little sense.
The bigger problem would be due to the mismatch in the return filing periods of large and small businesses. More than 80 per cent of taxpayers would be able to file quarterly returns after this move. Many of them would be supplying to larger businesses that file monthly returns. Therefore, it is difficult to see how the GSTR 2 form that is auto-populated based on suppliers’ returns would be prepared. The council has said that input tax credit can be claimed by larger businesses every month. But this would be possible only if the details of inward supplies are uploaded onto the GSTN. This would lead to more work for them.
Also, once smaller businesses file their quarterly returns, these would have to be matched with the monthly returns filed by large businesses. This could lead to further complications. The GSTN could consider asking larger businesses to file the GSTR 1, 2 and 3 quarterly too. The input tax credit could also be claimed every quarter. While this could cause cash-flow issues for a few quarters, it will get sorted once the cycle is established.
The move to keep reverse charge in abeyance up to March 2018 gives small businesses time to register for GST and get compliant. But it is hoped that the date is not extended any further as the reverse charge is the tool which makes the GST structure effective.
The inter-ministerial panel led by Bihar Deputy Chief Minister Sushil Kumar Modi that is looking at the technical glitches in the GSTN has said that it will try and iron out 80 per cent of the problems by end of October. But October is crunch time. With GSTR 1 for July already filed, the invoices have to be matched by the system and the auto-populated GSTR 2A has to be sent to assessees. Once GSTR 2A is validated, GSTR 2 will be filed, based on which the GSTR 3 has to be generated by the system. Taxpayers, consultants and the GSTN are in for a harrowing time.
The return filing numbers so far have not been encouraging either. Of the 65 lakh eligible taxpayers only 53 lakh filed the GSTR 3B for July and a lesser 31 lakh filed for August. Of these, around 40 lakh are reported to have filed the GSTR 1 for July. Fixing the issues with return filing is an arduous task, but needs to be tackled urgently.