July 1 came and GST is now a reality. The amount of time we have waited for this should only do justice for the country and its people, both in terms of ease of compliance and also lowering the tax rate in the long run. Another big hope the government is banking on is that GST would increase the tax base, which could potentially lower the tax rate over a period of time, and also increase consumption.
Such amassivetax legislation will fail to take off unless the Bottom of the Pyramid(BOP) embraces it effectively. And for the BOP to embrace it, the cost of compliance should be cheaper than cost of non-compliance. If the cost to comply becomes high, they would try and find ways to stay out of the tax net. Here, the SMEs become the effective BOP sincethe government is resting a large part ofits gamble on them.
Let’s look at some ballpark numbers here. We are talking about 80 lakh returns being filed in the first month. Of all these, we probably have 25,000 to 50,000 at maximum having systems in place, and also have professionals on board who should be able to guide them through to file their returns. Predominantly most of the others are dependent on outside support of Tax Return Preparers(TRP), who could be their Chartered Accountants or someone qualified to help.
If you look at large corporates, they are covered or at least they will ensure they will be covered. The bigger issue is going to be with the SME, which leads to a few questions:
- Does he do his business or spend time filing his returns?
- Does he expand his business or worry about paying extra taxes?
A lot of such things come to mind; however this is reality now and we need to deal with it.Let’s look at what the on-ground situation is.
- Though the Act is in force, the full-fledged impact will be felt only from September. The government has given a break to file the July and August returns in September. Though the billing systems have changed, for a small business that has only meant that VAT/Service Tax has become CGST and SGST. No one has seen and felt how a return needs to be filed. So
- What will happen if they go through the government portal, or should they go through an ASP/GSP?
- Will the portal have stability issues? A lot of small businesses want to file through the portal, and will it happen is a question that’s plaguing them. Going through an ASP/GSP will surely help because the stability, formats, complex situations get an easy and ready-made solution. However, it comes at a cost.
- Are the SMEs braced for the same, or would the portal really be a reality for them?
- Clarity around the rates is still lacking for about 10% of the commodities,which could be fatal for businesses. They are left to figure out what their competition is charging. In a situation where a businesscharges at nil rate instead of 5% and gets to know about the anomaly only after five years (during assessment),it will be a death knell for the business.
- If you look at the payment methodology, only 25 banks have been authorised to collect. You can pay by NEFT/RTGS if you have an account in these banks. A CPIN needs to be created by logging in, and once payment is made a CIN would be generated. If the payment is made through RTGS/NEFT, the UTR number needs to be mentioned. Three days from the generation of CIN or giving the UTR number, the payment will be reflected on the e-cash ledger.
- So, what does this mean? You need to pay by 17th and pray that all the details appear in your e-cash ledger for you to file your returns by the 20th. So much for easing payments!What’s the government trying to do here? On one side we talk of easing compliance, and if payment is such a hassle even for the well established businesses, imagine what an SME will go through.
- Linked to the above would be the issue of invalid returns and non-availability of input credit for the entire chain. If for some reason the payment does not go through, it would make the return invalid even if the e-cash ledger is updated by the 21st and GSTR 3 filed on 21st. The cascading effect would flow to the other issue of ratings. Invalid returns ensure that your ratings are low, which would cascade into a very serious issue for the existence of the business.
Having said all this, it is still a reality. By far this is the largest legislation that India has gone with. It is our bounden duty to make this successful, since anything less will have huge ramifications for the country. Let’s bear the pain for a while and hope that things fall in place.
The author is founder & CEO of KayEss Square Consulting Private Limited (firstname.lastname@example.org), a GST and direct taxes specialist.