One year of GST: Compliance still a challenge for small business owners

The government is coming up with a return simplification process in the next six months which will require a taxpayer to file only one return every month against three at present

The goods and services tax appears to have bedded down after initial hiccups, with more than 4.5 million new taxpayers in the system. While large companies appear to have transitioned well to the new indirect tax regime and the return-filing system, small units continue to grapple with challenges, including input tax credit, frequent changes in rules, and steep penalties for late filing.

Large businesses, at least, seem enthusiastic about the new simplified return filing structure, which will make doing business easier for them. Small business owners still remain cautiously optimistic that their compliance burden will ease.

After suspending the three-stage return filing process, the government is coming up with a return simplification process in the next six months. The proposed framework will require a taxpayer to file only one return every month against three at present.

R Sridhar, vice-president (taxation), Hindustan Coca Cola Beverages, notes that the GST has indeed made life simpler by merging a slew of indirect taxes levied by the states and the Centre. “The Council (GST Council) should focus on the GST Network to tally the credits through its data-mining capabilities,” says Sridhar. Industry, however, is not in favour of keeping unintegrated levies under the new tax regime. “We look forward to a fair and balanced assessment, appeal environment as we move to annual compliances dates,” Sridhar adds.

The GSTR-2 buyer return form and GSTR-3 input-output return form had been suspended after a hue and cry and the collapse of the GSTN system in November last year. Currently, industry is required to file GSTR-1 the seller return and GSTR-3B the summary input-output return, which does not allow automatic invoice matching.

Ashok Tyagi, group chief financial officer and whole-time director, DLF Ltd, recently pointed out the GST had brought in significant simplification and uniformity in taxation for real estate, allowing a transparent flow of input credits.

“We look forward to further rationalisation of the GST regime and stamp duties to bring down the incidence of tax for consumers,” he adds.

New filing system

The new filing system will be rolled out in two stages. Initially, provisional credit will be allowed to a buyer under the GST for six months, based on his own calculations, even if the seller does not upload the deal invoices. Thereafter, in the next stage, no provisional input tax credit will be allowed for buyers. Input tax credit will be made available only when the seller uploads the invoice. However, the liability to pay the tax will be on the seller.

HSBC, in its recent report, noted that the new indirect tax regime has not been able to live up to the promise of formalising the economy and nor has it brought down the demand for cash, which has in fact only gone up.

Finance Secretary Hasmukh Adhia counters this, saying that 4.5 million new taxpayers have been added. “I am not too sure about use of cash. However, formalisation of the economy means that some of the stakeholders who were not filing their returns have come to the tax net. Is it not enough that we have got 4.5 million new taxpayers under the GST compared to the previous tax regime?” asks Adhia.

For April 2018, 6.2 million returns were filed as against 6 million in the previous month, suggesting improved compliance.

Diversity in compliance

According to Pratik Jain, leader, indirect tax, PwC India, while large companies have adjusted themselves to the new regime, SMEs struggled in the beginning, partly because they were not prepared in advance and partly owing to complexity in the filing system. “Also, a large part of the sector was unorganised, which got a pushback from large corporates to come under the tax net owing to the self-policing system under the GST,” says Jain. But with an increased threshold limit under the composition scheme and many other simplification measures, SMEs have also largely settled, he adds.

However, small businesses do not agree with this. Praveen Khandelwal, secretary general of the Confederation of All India Traders, says the first year of the GST has been a mixed one for traders, with smaller ones struggling the most. “It has to do with the lack of awareness, frequent changes in rules and e-compliance requirements,” he says. He points out that 50 per cent of smaller players do not have computers, making it a challenge for them to file returns online.

Anil Bhardwaj, secretary general of the Federation of Indian Micro and Small & Medium Enterprises, points out that payments due to MSMEs continue to be delayed by the government as well as large buyers. In addition, higher tax slabs, coupled with the threat of excessive penalties in the GST regime, have starved MSMEs of working capital, he claims. “Non-performing assets (NPAs) are set to rise in MSMEs,” warns Bhardwaj.

Many small players say a late fee of Rs 200 per day for delay in filing GST returns is quite steep. Tax experts, however, point out that the new return filing system is expected to be simple and fast, and give some breathing space to businesses and service providers.

Key changes in the first year of roll-out:

October 2017: Composition scheme extended to those having a turnover of Rs 10 million against 
Rs 7.5 million earlier

Small and medium businesses with annual aggregate turnover up to Rs 15 million can file returns and pay taxes on a quarterly basis from the third quarter of 2017-18

A package of GST refunds and exemptions for exporters announced. E-wallet introduced on April 1, 2018


November: GST rates on 215 items slashed, only 50 items left under the peak rate of 28%

GST rates on restaurants cut to 5% without input tax credit

Composition scheme extended to those having an annual turnover of Rs 15 million from ~10 million earlier 


January 2018: The roll out of e-way bill for inter-state movement of goods above Rs 50,000 from February 1 announed


February: Portal crashed, e-way bill suspended


March 10: Council decides to implement e-way bill for inter-state movement of goods from April 1 in a phased manner
E-wallet deferred to October


May: Simplification of returns approved. Only one form to be filed a month. Scheme to be implemented the year-end
Two GoMs constituted for sugar cess and providing incentives for digitalisation