Is GST Council missing the bigger picture?

GST laws today are an amazing amalgam of restrictions through percentages, different threshold limits and a bewildering array of dates for filing of returns and complying with different provisions of the law. Composition dealers have a different threshold limit while the small taxpayer has been defined as one with a turnover of less than Rs 5 crore.

Different dates for filing have been announced depending on whether the taxpayer is located in South India or North India. The GSTR 3B form which was introduced as a temporary form has become semi-permanent at least till March 31, 2021.

But it is in the restrictions though percentage ceilings and floors that the lawmakers truly revel in. Rule 36(4) was introduced in 2019 through a notification that restricted credit that could be availed at 20% of the eligible credit that has been uploaded by the counterparty to the transaction. Seeing an uptick in GST collections after this announcement, the percentage was altered to 10%.

The latest meeting of the GST Council continued this fascination for percentages. It announced that as a further step towards reducing the compliance burden particularly on the small taxpayers having aggregate annual turnover of less than Rs 5 crore, the Council’s earlier recommendation of allowing filing of returns on a quarterly basis with monthly payments by such taxpayers would be implemented from January 1, 2021.

Such quarterly taxpayers would, for the first two months of the quarter, have an option to pay 35% of the net cash tax liability of the last quarter using an auto-generated challan. There can be no answers to questions such as why only for the first two months or what was the basis to arrive at 35% apart from a fascination for artificial restrictions by playing the percentage game. Since this is only an option, it is expected to remain that way as the small taxpayer would not be in any mood to account for 35% of GST payments as advances and the remaining 65% on payment at the end of every quarter. Entities that have common credits and reversal of input tax credit would have nightmares in doing a reconciliation of all these facets.

The GST Council also announced that taxpayers with a turnover less than Rs 5 crore would need to fill in six-digit/four-digit HSN/SAC Codes for supplies to registered and unregistered counterparties, respectively. As always, there is a caveat – the government to have the power to notify eight-digit HSN on the notified class of supplies by all taxpayers. The GST law has seen much litigation on HSN Codes – the GST Council would do well to simplify the HSN/SAC Codes before embarking on further changes.

Till date, an amicable solution to the GST Compensation issue has eluded the GST Council. There is no doubt that there would be a further extension of the GST Compensation Cess. State governments would have to agree to a haircut on the promised growth of 14% in the extended period of the compensation cess. The last has not been heard on this issue - much debate and drama can be expected in times to come.

According to the CAG, the central government, in violation of the GST Compensation Cess Act, 2017, short-credited the GST compensation cess fund to the tune of Rs 47,272 crore during 2017-18 and 2018-19, retaining the amount in the Consolidated fund of India. By doing so, the funds collected through the compensation cess route could be used for purposes other than those provided in the Act. The CAG concluded that this accounting gimmick led to an overestimation of the Centre’s revenue, and as a consequence, an underestimation of its fiscal deficit. Government accounting has always been a matter of conjecture – reports such as this only add to the mystery surrounding the accounting.

Invoicing method

GST laws are still researching on the ideal method for invoicing. The system of e-invoicing has made its entry from October 1, 2020 after a generous (and welcome) increase in the eligibility limit from Rs 100 crore to Rs 500 crore. In its 39th Meeting held in March 2020, the Council had recommended an incremental approach to incorporate features of the new return system in the present scheme. With a stated intent to further enhance the Ease of Doing Business and improve the compliance experience, the Council has approved the future roadmap for return filing under GST.

The approved framework aims to simplify return filing and further reduce the taxpayer’s compliance burden in this regard significantly, such that the timely furnishing of details of outward supplies by a taxpayer and his suppliers would allow him to view the ITC available in his electronic credit ledger from all sources prior to the due date for payment of tax. This would also enable the system to auto-populate the monthly return through the data filed by the taxpayer and all his suppliers. Right from the beginning, one of the main inefficiencies of the system of filing of returns under GST has been the inability for a taxpayer to revise their returns.

GST laws as they stand today are filled with complexities and it is natural for a taxpayer to make unintentional errors. A system of filing a revised return was mooted some time back and draft returns also published but has not seen the light of the day. Since the auto-population scheme depends on what the counter-party does, taxpayers could end up having to pay taxes just for dealing with a person who takes his time in complying with the law.

It is apparent that the GST Council is focusing too much on compliance issues and thereby missing the bigger picture. Maybe they could form a Compliance Committee (akin to the Fitment Committee) that would take care of the pronouncements on compliance in order that they focus on the bigger picture of revenue sharing, responding to audit objections and continuing their attempt to make GST a Good and Simple Tax.

(The writer is a Bengaluru-based tax expert)