Union Budget 2022-23: The government should consider introducing revised annual GST return system
Indian Union Budget 2022: File image of Finance Minister Nirmala Sitharaman. PTI
Tax compliance has undergone an overhaul and there is a need to smoothly accommodate a large base of small businesses onto the digital platforms.
The top GST expectations from Budget 2022 are as follows:
Expand e-Invoicing System
First, the government must consider lowering the e-invoicing applicability limits this Budget 2022. While the GST Council may meet soon after the Budget session, we expect clarity on the future roadmap of the e-Invoicing system in the Budget speech.
The government must soon announce a reduction in the e-invoicing threshold turnover limit from Rs 50 crore to Rs 25 crore. E-invoicing comes with many benefits; it makes sales recording more transparent among mid-sized businesses. It further reduces errors and improves tax compliance, by making businesses more agile. The move will remove any regulatory delays experienced through the supply chain system.
Any such announcement not only favours newly started small or medium businesses but also those large enterprises who do business with them. It would ensure speedy, accurate and genuine Input Tax Credit (ITC) claims since all the Business-to-Business (B2B) invoices are uploaded on time onto the GST Network (GSTN). Small and medium businesses will be able to leverage invoice discounting as an alternate, safe and faster financing option. In turn, it increases the working capital flow in businesses.
Expanding the e-invoicing system will require the setting up of robust systems in organisations to ensure its smooth implementation. These systems must get integrated with other business operations such as accounts payable, inventory, etc for businesses to get the maximum benefit from the move. However, an initial cost will be incurred to set up and test the system.
Hence, the government must provide sufficient time and necessary resources before launching e-invoicing for taxpayers above the expected Rs. 25 crore limit.
Paying GST on reverse charge for non-compliant vendors
Next on the list is the introduction of a reverse charge-based mechanism to further push GST compliance. To improve overall GST compliance, boost revenue collections, and eventually expand the taxpayer base, the government must consider introducing a new rule under the reverse charge mechanism.
Large taxpayer buyers with a turnover of more than Rs 100 crore or Rs 500 crore, could pay GST dues directly to the government, instead of their small vendors, such as those with a turnover less than Rs 5 crore.
For instance, a large manufacturer M/s PQR Ltd regularly purchases from supplier Mr MNO. Supplier Mr MNO is a small-time businessman who finds the entire process of monthly computations and tax payments cumbersome. In this case, M/s PQR Ltd. will directly pay the GST amount on MNO’s invoices to the government. Likewise, M/s PQR Ltd. does this for all its small suppliers.
For small businesses, their tax compliance burden would drastically reduce as they no longer need to pay GST monthly since all their large enterprise customers directly remit GST to the government. It would be sufficient for small businesses to file a quarterly or half-yearly statement reporting sales and pay any balance taxes if any.
On the other hand, large enterprises could overcome their biggest challenge of dealing with small vendors. Vendors who do not upload invoices on time would have otherwise led to the unavailability of ITC.
With a change in the onus of tax payment to buyers instead of sellers, they can smoothly claim the ITC and reduce any administrative burden of following up with small vendors. Large enterprises would have most of their documentation automated so there is no additional burden on them. Like any sales transactions, their purchases under reverse charge too can be filed with the government with a click of a button.
One may choose to ignore the additional work since these enterprises no longer face working capital blocking due to delays in ITC claims. It could motivate them to remit GST on behalf of their small vendors. Furthermore, the government will also get its dues on time.
Introduction of revised annual GST return form
Last, but not least, it is time that the government considers the introduction of a revised annual return system or form. It should allow taxpayers to correct any mistakes while filing GSTR-9 returns, especially for the B2B transactions. The move will benefit all the taxpayers from unnecessary hassles such as unclaimed ITC due to vendor delays, declaring any unreported sales invoices, interest levy and clerical errors.
Such a move must be allowed one time every year after filing the annual returns such as GSTR-9 with a sufficient time window of at least 30 days. It will allow sufficient time for taxpayers to identify and correct the errors to replace the originally filed annual returns.
Apart from the above, many industries are betting big on the upcoming Budget 2022 for GST rate cuts especially textiles, real estate, automobiles and healthcare.
The author is Founder and CEO, Clear (n?e ClearTax), a fintech SaaS company. Views are personal.
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