The new single-page return and the transition process approved by the GST Council in the May meeting is a step in the right direction as it tries to iron some of the difficulties faced by tax payers in the first few months, while trying to retain the basic objectives of GST – expansion of tax base and checking tax evasion. That said, one of the provisions of this new return filing process that might not go down too well with tax payers is the withdrawal of the leeway provided to smaller companies to file quarterly returns.
In the first few months after implementation of the GST, smaller companies faced greater difficulties in getting used to the tax filing on an IT platform. A lower level of computer literacy, lack of manpower and necessary infrastructure made it difficult for them to comply with the need to upload all the sales invoices every month in order to file the GSTR 1 returns. It was easier to get comfortable with GSTR 3B returns that are only summary returns and do not require uploading of invoices.
In order to provide some breathing space to smaller businesses, the GST Council, in its October 2017 meeting, asked taxpayers with turnover up to Rs 1.5 crore to file GSTR-1 on a quarterly basis. They were, however, required to file GSTR 3B on a monthly basis and receive input tax credit on a monthly basis.
With the need to upload invoices only once every quarter, the pressure on tiny businesses would have eased greatly. A look at the return filing numbers shows that about 40 per cent of regular tax-payers opted to file quarterly returns. While around 22 lakh GSTR1 return forms were filed in October and November 2017, the numbers increased to 55 lakh in December.
The new return and filing process announced last week lays down that all taxpayers, with the exception of composition dealers and dealers with nil tax, shall file one simplified monthly return, GSTR1. The return filing dates are sought to be staggered, depending upon the turnover of the registered person.
The transition is set to be in three stages – In stage 1, the present system of filing of return GSTR 3B and GSTR 1 is set to continue and this is expected to continue for not more than six months.
After six months, the new single-page GSTR1 will have to be uploaded monthly by the smaller businesses, with turnover less than Rs 1.5 crore too. All the sales invoices along with self-declared input tax credit will have to be included in the return.
In stage 3, input tax credit will be available only if the supplier enters the transaction as part of his sales. In other words, the differentiation between smaller and larger businesses in GST filing is set to go after six months.
This is, however, a right move as invoice matching, which is necessary to check tax evasion, can happen only if all entities file returns for uniform periods. With some entities filing quarterly and others filing monthly returns, the mismatch in return filing dates made invoice matching difficult.
With the compliance ratio for filing GSTR1 hitting 63 per cent in December 2017, it is obvious that businesses are getting increasingly more comfortable with filing GSTR1 returns and uploading invoices. It is, therefore, right that the temporary relief provided to businesses is withdrawn.