Big Relief to MSME Sector

Complaince

The GST Council in its 22nd meeting held at New Delhi on 6th October 2017, gave some big reliefs to SMEs by reducing their burden of compliance.

The new changes made by the GST Council is expected to be of great help for businesses in the MSME sector.

Let me give you the broad changes made by the Council in this regard.

  • Composition scheme was only available to taxpayers who have annual turnover up to Rs. 75 lakhs before it was amended on 06th October, 2017. This amount has now been raised to Rs. 1 Crore and is available to taxpayers having annual aggregate turnover of up to Rs. 1 Crore. This turnover threshold is increased to Rs. 75 lakhs from the earlier limit of Rs. 50 lakhs for special category States excluding Jammu & Kashmir and Uttarakhand. For Jammu & Kashmir  and Uttarakhand it will be the same as for other states i.e. Rs. 1 crore.
  • Taxpayers under GST can opt in for this new threshold limit till 31st March, 2018. Both migrated taxpayers and new taxpayers can avail this scheme till that date.
  • If you are a new taxpayer opting for this scheme – then you have to file GSTR-4 Return form for the quarter in which the scheme becomes operational in your case and you have to file returns as a normal taxpayer for the preceding tax period.
  • As per this new notification, even persons who were considered ineligible for availing the composition scheme as they were providing some exempt service, shall now be eligible for the scheme.

These new changes made by the GST Council by way of increasing the threshold limit of the Composition Scheme will make it possible for a large number of taxpayers to avail the benefit of easier compliance under GST tax laws. This is expected to be of great help for businesses in the MSME sector.

 

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GST – Will Benefit Customers, Govt. and Industries Alike

The newly introduced GST law benefits Govt., businesses and customers in many ways.

First of all, GST will reduce the number of tax exempt goods being sold or “supplied” as per the terminology used in the new law. Under the old tax laws, this was a major cause of revenue loss for the government. GST will thus indirectly help the govt. in generating more revenues.

Another positive impact of GST is providing input tax credit to suppliers across the board. This will encourage all suppliers to become tax compliant. In effect, this will increase number of taxpayers and again generate more revenue for the government.

The logistics and Inventory costs of businesses across industry is likely to fall under GST. This is mainly because of the complete removal of checks at State borders across the nation.

Long queues of trucks, stagnant for hours and hours together used to be the order of the day in the old tax regime. These check points were also a place of rampant corruption.

GST will now make movement of goods through State borders faster without hindrances.

Studies in this field have established that in India, on an average – trucks travel 280 km a day compared to about 800 km a day in United States. Losses are not only caused by way of a higher cost for transportation, but it also happens when goods do not reach on time to its destination.

GST effectively addresses these issues and makes a huge improvement by scrapping the check nakas. GST enhances the efficiency of logistics and inventory costs of business all over the country. GST brings direct benefits to businesses in this area of expenditure.

GST also brings a big investment boost – especially in the capital goods sector. This will be on account of the transparent and smooth taxation process under the GST laws.

In the previous tax structure, input tax credit was not available for many capital goods. With the implementation of GST, full input tax credit will be available to them. This means a clear 12-14% drop in their overall costs. This will definitely bring substantial growth in capital goods investment around the country.

Manufacturing industry will also benefit on account of removing problems like cascading effect of taxes, inter-state taxes, high logistics costs and fragmented market conditions prevailing in the market. Removing these ills are are big positives for the manufacturing industry and this will bring a big boost for growth in the industry.

The indirect tax revenues of the Central and State governments will improve under GST. This will happen primarily due to widening of tax base, increase in volumes of trade and more particularly through improved tax compliance.

Above all benefits, an important positive factor of GST is that it will be an easier tax law to administer. This will eventually happen once its initial implementation process gets over. GST will have lesser hassles for both its administrators and taxpayers once the glitches are sorted out. This will happen after the system starts running smoothly after some time.

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Benefits of GST

The existence of multiple tax laws in the earlier tax system created a lot of confusion and hardship for businesses in almost all sectors of the industry.

Most businesses were forced to deal with tax authorities under Central, State and Local level administrations. This situation made it binding for businesses to pay taxes to these multiple tax authorities. Besides that, they had to keep different books of accounts, file different sets of returns and also keep in pace with the procedural and legal needs of these multiple authorities.

The implementation of the Goods and Services tax (GST) is a kind of lifeline to these businesses. GST resolved the main issue of bearing with multiple tax authorities as it brought all the Central and State tax laws under one banner i.e. GST.

Multiple issues created by the old tax system was resolved in one stroke. GST is therefore considered a revolution in the indirect tax structure of India as it brings the whole country under one nation, one tax system.

All Central and State taxes are now amalgamated under the GST. The taxes of the Central Govt. are subsumed under CGST (Central GST) and taxes of State Govt. are subsumed under SGST (State GST). This new tax structure will simplify the tax payment process for businesses.

GST will simplify and bring in an efficient tax collection system for the authorities. GST is thus aimed to generate higher output for industries in future.

GST is scheduled to bring bigger tax revenues for both Central and State Government over a period of time. It will bring many industries that are in informal sector today, to formal sector.

The cumulative effect of all these factors will result in creating higher growth rate which will lead to more employment opportunities for people. Notwithstanding these benefits, the implementation of GST is likely to cause many hiccups and cause high administrative costs, at least in its initial stages.

GST – Effectively Resolving Old Tax Flaws

Goods and Services Tax or “GST” as it is popularly known is the newest taxation system in India which came into existence  on 01st of July of 2017.

This new indirect tax structure became a law after facing a number of political hurdles in the course of its becoming a law. In fact, it is also expected to encounter a large number of functional hurdles during its implementation owing to its scale and complexities.

The implementation of this transformational tax system in a huge and multi-dimensional country like India has generated a lot of interest in the financial circles around the world.

The impact of this new taxation can only be understood by knowing a little about the earlier indirect tax system which existed prior to the implementation of GST.

Let us therefore put that into perspective.

Since the last seventy years, India has been following a three-layer structure of indirect tax system in the country. Businesses either manufacturing or services were liable to pay taxes to the Union or the Central Government, the respective State Government and the Local bodies like municipalities.

The old indirect tax system had a number of flaws in it. In fact, the primary cause of most of the flaws in the tax system was on account of control of multiple authorities over a single business entity. The multiple authorities being the Central, State and Local governments. Let me quote a few examples of the said flaws:

  • In the old tax structure, there were about 17 laws that a business entity could be subjected to. This created multiple accounting works for a business in matters related to taxation.
  • Every business entity had to encounter all applicable taxes imposed by the Central, State and Local govt.
  • Dealing with multiple tax authorities means encountering multiple tax officials related to each law applicable. This created multiple bureaucratic hurdles for smooth functioning of any business.
  • Businesses had to adhere to filing of multiple tax documents like Returns and annual reports, keep multiple account books etc. catering to different tax authorities.
  • A single product or a service was at times subjected to multiple taxes (for e.g. States used to charge VAT on the Excise Duty paid by a manufacturer to the Central Govt.)
  • Goods that were sold across states were taxed without any provision of input credit to buyers.
  • Purchase value of products varied from State to State based on variable tax rates levied by different States (for e.g. VAT on mobile used to be 5% in Delhi and 14% in Maharashtra thus having difference in the price of the same item at different parts of the country).
  • Differences in threshold limit existed under different tax laws (for e.g. under Central Excise Act the threshold limit for a small manufacturer is set at Rs 1.50 Crs whereas under the Service tax Act the limit was only Rs 10 lacs).

These are only a few deficiencies of the old tax system that existed prior to the introduction of GST. Now, removing or nullifying the effects of these flaws will not only ensure a smooth and fair tax collection mechanism set in place, but it will also bring a higher amount of tax compliance from businesses in the future.

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GST Returns Filing – Dates Extended

On 19th Aug. 2017, Central Government announced that the last date for filing returns and payment of taxes for GST taxpayers has been extended to 25th August, 2017. An announcement on these lines was expected as explained in an earlier post on this blog.

As per new guidelines the last date for filing the first return and payment of taxes under GST is on 25th August, 2017. But, for those taxpayers who intend to claim credit for taxes paid in the past tax regime (under the old Central or State tax structure by filing their form TRANS -1), the last date for filing returns is 28th August, 2017.

The government was compelled to give this extension mainly due to technical issues faced by the GSTN portal on account of heavy rush in filing of returns prior to the earlier dead line of 20th August, 2017. The GSTN portal suffered some technical glitches as it was not able to cope up with huge number of returns being filed by taxpayers in the last minute.

In view of this, the finance ministry issued a statement that: “The GST Implementation Committee, consisting of state and central government officers, has taken a decision to extend the last date for payment of GST for July 2017 to August 25, 2017.”

It also said that certain flood-hit states as well as Jammu and Kashmir had sought such an extension.

The Finance Ministry has requested all taxpayers to file their returns at the earliest so as to avoid recurrence of glitches in the filing process on account of large scale last minute filings. But in fact, taxpayers claim that they are facing problems in their filing process, even now. As a confirmation, GSTN tweeted, saying “The GST portal is experiencing some issues. Kindly try after some time.”

The website of ‘gst.gov.in’ also ran a scroll: “We are experiencing slowness and are working to improve the response. Please bear with us.”

Understandably, it is not going to be an easy matter to resolve quickly looking at the fact that over 71 lakh excise, service tax and VAT payers have migrated to the GSTN portal and over 15 lakh new assessees have registered on the platform. There are going to be more glitches and issues until these taxpayers learn to do their filings efficiently on time and on the other hand GSTN network becomes capable to run smoothly without hiccups for a large number of taxpayers to file returns simultaneously.

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Filing of GST Returns – Some Minor Issues

The dead line for filing summarized interim return (GSTR 3B) for all GST registered taxpayers is on 20th August. But it seems there is a big challenge to achieve this target for a majority of registered GST taxpayers.

Only a very small number of taxpayers – which is about 16,000 – have filed their returns as on 16th August, 2017. Imagine the remaining numbers still left out – from a total of about 87 lakh taxpayers who have got themselves registered under GST of as of now.

In fact, there are a number of uncertainties that a taxpayer has to deal with in his return filing process.

Sources say that GSTN has delayed the delivery of application programming interfaces (APIs) for  summarized interim returns which is the “GSTR 3B” to the GST Suvidha Providers (GSPs). This will necessitate taxpayers to file their returns directly on the GSTN portal thus putting a heavy load on the portal in the last moment which can even lead to crashing of its servers.

GSP’s i.e. the GST Suvidha Providers are selected IT companies which have been provided with API’s by the GSTN for accessing their servers to build customized solutions for different needs of the assessees, including filing of tax returns.

GSP’s have implied that there have been delays in the delivery of API’s on the part of GSTN thus making it impossible to update their software for uploading returns of their users. This scenario has effectively put the GSTN system under immense strain as all filings will have to be performed at its portal.

GSTN officials have been countering the statements of GSP’s regarding API’s stating that not all of the GSP’s are fully prepared themselves to connect with the GSTN portal. Further they claim that the uploading of invoices and filing of returns through GSPs has been quite slow indicating the lack of their preparedness.

Besides the problem of filing of returns, things could get even more complicated as over 30% of the firms registered on GSTN have still not completed the second part of the application form required to complete the process of their registration. This will be a major hurdle to complete the process of filing returns as these businesses would be prevented from filing their returns.

Let us hope that these are just the initial hiccups that we find in any process set in place and they are likely to be addressed and resolved at the earliest. One can always look at the scale of the process and then look at these issues – leading to a different perspective and see that they are minor problems faced in the process of setting a huge system in place.

Once these teething problems are smoothened  out it is expected that this major tax reform will result in better tax compliance and easier tax administration.

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