Even more than 100 days after Goods and Services Tax (GST) kicked-in, the government is still trying to figure out the reason behind low compliance.
One of the biggest challenge for the government since GST’s implementation has been the issue of non-compliance as some assessees had difficulty in coping with it because it was a new system with a somewhat complicated return filing format.
Around 70 percent of the assessees under GST had filed detailed sales returns (GSTR1) for July, while about 64 percent did so for the summarised return GSTR3B in August.
Around 90 percent filed GSTR3B for July. There are 91.86 lakh tax payers who have fully transited to GSTN, out of which more than 15 lakh are not eligible as they have opted for the composition scheme that is meant for taxpayers with an annual revenue turnover threshold of Rs 1 crore.
While the government is currently conducting a survey to ascertain the reason for lower-than-expected return filing, but the rationale behind non-filing of returns could be completely different from what could be the obvious reason of a tendency to evade tax or a complicated tax return filing process.
Out of the total number of registered taxpayers, around 15-20 lakh assessees have been migrated to GSTN without being eligible, a senior government official told Moneycontrol.
“Poor compliance may not necessarily be tax evasion. For example, some tax payers who were registered under service tax regime have shut businesses. They have been automatically migrated to GST Network (GSTN), but they cannot de-register,” the official explained.
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Currently, GSTN, the information technology (IT) backbone of GST, is working towards introducing a feature, which will enable businesses cancel their registration, if they decide or has already exited or wrapped up the business.
Under GST, an assessee can have nil taxes, but has to mandatorily file tax return.
According to experts, lot of assesses are not required to file returns because of a string of writ petitions.
For instance, legal services are under reverse charge mechanism (RCM) now and are not required to file tax returns. Such assessees would be waiting for an updated circular as the government has deferred RCM till March 31, 2018.
Reverse charge is a mechanism where the recipient of the good or service will have to pay GST, which is otherwise paid by the supplier. The charge is applicable on a registered dealer, if he buys goods from a dealer not registered under GST. However, the receiver of the good is eligible for input tax credit, while the unregistered dealer is not.
“The main reason is not non-compliance. But lot of people have to be migrated out of GST. The predominant reason could also be that a lot of exempted suppliers will be out of the GSTN. They have been automatically migrated. The sheer drop in compliance is not only because of non-filing, but there could be other reasons also,” Abhishek A Rastogi, Partner, Khaitan & Co.
“There are a lot of exempted suppliers who have been automatically migrated to GSTN. They are not required to file returns. The system doesn’t allow them to de-register themselves,” Rastogi said.
If one weeds out ineligible tax payers, around 20 lakh payers would not be a part of the tax base, with very few defaulters, who may file returns later.
According to Pratik Jain, Partner and Leader Indirect Tax, PwC India, many dealers who have the GST registration but have nil turnover and hence have not filed the return.
“The government will have to investigate the reasons for low level of compliance and take corrective steps,” Jain said.