Complicated returns, technical glitches in the GST Network and increased compliance burden due to multiple monthly returns had turned returns filing a chaotic experience for taxpayers in the first year of the GST regime.
To address these concerns, the GST Council has approved a single monthly return for all taxpayers and given leeway to smaller taxpayers to file quarterly returns through simplified forms. While the new returns and the modified method to claim input tax credit — that may be implemented in early 2019 — will reduce the compliance burden and check tax evasion over the longer term, smaller businesses are likely to face hardships in the changeover phase.
Small businesses have already sunk money in modifying their accounting systems to adapt to GST from the earlier indirect tax regime that consisted of excise duty, sales tax, VAT etc. With the proposed merger of the three monthly GST returns — GSTR 1, 2 and 3 — into a single return, they will have to incur additional expense in tweaking the software.
“There will be additional expenses in reconfiguring the ERP system as per the new GST return format...reconfiguring the fields in the ERP and ensuring there is a mechanism in place to capture the data required as per the new format,” says Abhishek A Rastogi, Partner, Khaitan & Co.
Also, given that the new returns are more complicated than the earlier ones, companies will have to spend more to adapt, says Himanshu Relan, Partner - GST, Nangia Advisors LLP. Besides tweaks to the systems, training afresh of accounting personnel will also lead to cash outgo.
The compliance burden is also expected to increase, especially for smaller businesses, due to the new method proposed for taking input tax credit. The GST Council has proposed that invoices be uploaded by the supplier on a real-time basis and the buyer accepts (locks) the uploaded invoice to claim input tax credit.
This can make larger companies pressure their smaller suppliers to upload the invoices immediately, and error-free. But this is likely to create an enormous burden for the smaller suppliers.
“Many smaller businesses do not employ full-time accountants. But if the invoices have to be uploaded in real time, they may have to hire full-time accountants, which they cannot afford,” says Pritam Mahure, a Pune-based tax consultant.
According to the new system, only invoices that are uploaded by the 10th of the next month can be selected by the recipient to get the input tax credit. After that date, it can be claimed only in the subsequent month. This can create cash flow problems.
Under the original structure, a buyer could upload additional invoices if they had not been uploaded by the supplier. But the new regime proposes that only invoices uploaded by the supplier would be considered. Any missing invoices may lead to delays in getting the input credit, leading to more cash flow problems.
Sound planning and adequate pilot runs before the transition are essential, as small businesses can ill afford any further changes.
“The GST Council should ensure that testing, preferably on five large and five MSME GST payers from each State is carried out before the system goes live. Also, the results of this testing should be made public so that other taxpayers can understand the challenges/errors and avoid them,” says tax consultant Mahure.
“The implementation of the matching mechanism has to be backed by a robust technology framework. Also, timelines will have to be adhered to religiously,” says Khaitan & Co’s Rastogi.