Ease of GST compliance: Still a distant dream

India’s biggest tax reform, the Goods & Services Tax (GST) was introduced on 1 July 2017. The journey of GST in India has been a roller-coaster ride with many hits and misses. Since its inception, the Government has considered several legal and procedural changes to simplify the tax system for the smooth functioning of GST in the country. GST has also brought with it a paradigm shift in the use of technology in tax administration and compliance. However, even 5 years and multiple policy amendments, it seems that not everything has unfolded as planned.

GST compliances which were envisaged to be easier and less complex, have turned out to be a compliance nightmare with multiple and frequent changes in the tax returns and reporting requirements. Further, the GST portal has been a puzzle and cause of concern for many taxpayers since its inception. Harmony between the provisions of the law and the functionality offered on the GST portal remains elusive. It took months to update the portal on account of changes in the law and process and still, it continued to face technical glitches.

Under the GST Law, the facility to revise incorrect reporting in a return is still limited and inadequate to meet the needs. If a taxpayer records an error while filing a return, he should be allowed to rectify it voluntarily. Currently, errors made in a tax return are corrected in the subsequent month’s GST returns. As the return functionality/utility doesn’t permit rectification of errors in the source document (respective monthly return) with a suitable audit trail and adjustment of tax liability, but merely allows corresponding adjustment in the subsequent period’s return, it brings along various challenges. Also, in such instances, it is difficult to periodically match the return data with books.

The process of the claim of Input Tax Credit (ITC) has undergone several changes over the last 5 years. Earlier, taxpayers were allowed to claim the entire eligible ITC based on their purchase invoices and GSTR-2A was only facilitation, which did not impact the ability of the taxpayer to avail ITC on a self-assessment basis. Subsequently, the ITC was restricted to 120%/110 %/105% (as amended from time to time) of the matched credits with GSTR-2A. Later, through another change in the functionality and law, ITC would not be available unless the details of invoices have been communicated in Form GSTR-2B by the government portal.
Further making matters worse, the Union Budget 2022 imposed another onerous condition that ITC would be available only if it is not restricted in the auto-generated form by the common portal. The restrictions enumerated under the said provisions are to address defaults of the suppliers viz. non-compliance with registration provisions, default in reporting and payment of tax, excess ITC availment, etc., the imposition of such restrictions on the recipient, for the non-compliance of a supplier causes hardships to the recipient, who has no recourse or control over the supplier. Seamless ITC is one of the stated objectives and salient features of GST, now becoming a casualty in the process.

The recent changes in reporting of returns in form GSTR-3B require the recipient to avail ITC as per the GSTR-2B data and reverse the ITC for supplies that are not received by him or in transit. The basic report for claiming ITC would be GSTR-2B and the taxpayer would be cumulatively required to maintain a reconciliation between their purchase register and the ITC claimed in GSTR-3B. Therefore, the recent changes in form GSTR-3B are primarily meant to ease tax administration, which adds to the woes of the taxpayer making compliance difficult and cumbersome.

In addition to the above, the ambiguity in the annual returns and reconciliation statement on several fronts, delay in operationalisation of forms such as ITC-02, glitches in the portal with respect to the filing of TRAN-1, etc. have made compliances under GST a nightmarish proposition for taxpayers.In conclusion, a pathbreaking and progressive piece of fiscal law has turned into a horror story from the perspective of a compliance ease promise. It is critical to reckon that the policies and procedures must be designed to reduce the compliance burden on honest taxpayers. It is anticipated that the GST Council would continue to consider the challenges faced while introducing appropriate changes for the seamless flow of ITC, simplification of compliance mechanisms, etc. to establish a taxpayer-friendly and empathetic GST system. This would also promote entrepreneurship and create a facilitative fiscal environment.

The writer is Associate Partner – Indirect Tax, BDO India.

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