Goods and Services Tax (GST) being the largest indirect tax reform in Indian tax history is on the verge of implementation. The common elation around the bill is that the GST will be a boom time for industry. As a consequence, it has been argued that GST will pep up the rate of industrial growth and GDP.
One of the important points of discussion and concern is the cost of compliance.
The incremental burden of compliance shall vary for different classes of businesses. The service sector would be worst hit as the munificence of centralized registration would be taken away. Taxpayer would be required to get registered in every State from where he provides service. The number of filings would increase from 2 to minimum 37 in a year for each registration, considering GSTR-1, GSTR-2 and GSTR-3 are treated as 3 returns. In case Input Service Distributor and Tax Deducted at Source (TDS) registration are obtained in a state, the number could go up by another 24 filings a year for each registration. Previously the service sector was exposed only to the Central Authorities. But the service sector would now have to face the State Authorities as well, leading to increased compliance costs.
Large manufacturers are already filing monthly Excise, Value Added Tax (VAT) and Central Sales Tax (CST) returns and hence the tweak of increased compliance would be felt to a lesser extent. The factory level Excise and VAT registrations within a State can now be consolidated into a single State-wide registration.
The Model GST Act will affect the micro and small sectors badly with the registration limit being cut down to 10 Lakhs. Till now they have had the Excise Duty exemption up to 1.5 Crores. A composition scheme has been proposed for taxpayers having turnover up to 50 Lakhs, which provides for quarterly filing of returns. Such taxpayers may not qualify for input tax credit and won’t be able to issue tax invoices. Not many taxpayers would wish to remain outside the credit chain. Apart from Composition Taxpayers, quarterly filing relaxation has not been extended to other businesses and hence majority businesses shall have comparatively more filings.
One area of concern is the online matching of input tax credit and reversal of credit or demand in case of mismatch. This process may turn out to be the most exasperating part of compliance. Problems similar to TDS return filing in Income tax may be expected during initial years. Compliant taxpayers would certainly be chosen as business partners with monthly matching of details and GST compliance rating being made available.
Small taxpayers having scarce infrastructure may find compliance to be challenging and costly. However, facilities like GST Tax Return Preparers may assuage this dilemma. The entire compliance process shall be online only. Hence, accurate integration with the ERPs and accounting packages would make life easy for businesses. It shall be more of a capital budgeting decision for companies to choose the correct IT infrastructure. Proper planning may enable control over compliance activities from a single location.
Overall, the utter quantum of data bytes to be uploaded and processed shall increase multifarious. Proper investment in IT infrastructure and personnel training shall become the need of the hour. For smooth transition from existing regime to GST regime, every business should ensure proper GST implementation and control cost of compliance.