How can the Government Make GST Compliance Simpler for Businesses?

The implementation of the Goods and Services Tax (GST) has eliminated the cascading effect of taxes, and in some cases even reduced the effective tax rates. Although businesses have witnessed significant improvement in their supply chain efficiency under the new indirect tax system, they are also burdened with complex tax compliance. The government has taken several measures to make it easier for taxpayers to comply with GST laws and rules. Moreover, it is also looking into ways to curb tax evasion and increase the revenues.

There are certain measures that the government can take to bring much-awaited transformation to the indirect tax regime. The steps might not only make GST more compliant-friendly but also reduce tax avoidance.

1. Revising the number of tax rate slabs

Besides making changes to tax rates, the government needs to decide on the structure that has been static since the implementation. The number of tax rate slabs, presently tax rate is (0%, 0.125%, 1.5%, 2.5%, 6%, 9%, and 14%. Maximum rate of CGST will be 20%), is one of the troubling points for taxpayers. Recently, even the state governments were suggesting the GST council to make changes in the slabs of GST rates. As per the suggestion, the tax structure was planned to be simplified into three slabs. However, it has not come into fruition yet but it is crucial to ease the compliance burden for taxpayers.

2. Improving claiming of input tax credit

The availing of ITC should be in line with the global practice. The government has recently restricted to claim 10% (As per rule 36(4) of CGST Rule, 2017) of the total tax credit. This could hurt a business's cash flow.

3. Adding more items under the scope of GST

There are still several products such as Petroleum crude, High speed diesel, Motor spirit (commonly known as petrol), Natural gases and Aviation turbine fuel, that are not included under the ambit of GST. It shall be levied with effect from such date as may be notified by the Government on the recommendation of the GST Council. Furthermore, taxpayers are unable to utilize tax credit for products that are left out of the GST bracket. Although the government will have to make multiple tweaks to fit all the sectors under GST. This would be beneficial in the long run for all the stakeholders.

4. Setting practical mop-up targets

According to the official figure, the GST monthly collection has been around ₹1 lakh crore in the FY2019-2020. Hence, the collection has been significantly lower than the revenue targets set by the government. Although the revenue mop-up is important, it does not reflect the functioning of the GST system which depends on the ease of compliance for businesses and widened tax base.

Up until recently, the Central and state tax officials had taken a lenient approach in administering the indirect tax, making it easier for businesses and traders to transition into the new regime. From planning to implement a new return filing system to using data analytics to plug revenue leakages, the government has started taking stricter measures to put an end to evasion and increase revenue collection. The proposed new return forms will restrict the utilization of tax credit to the extent the invoices uploaded by the supplier.