The changes in the goods and services tax laws announced in the Budget, which make availing of input tax credit stringent in an attempt to catch fraudsters, may affect the ease of doing business, and could further add up up to current litigation pile, said experts.
The government has proposed to amend the existing law, laying down more conditions where input tax credit (ITC) cannot be availed by the taxpayer. The Union Budget 2022 proposes to restrict the ITC under certain scenarios based on the auto generated inward supply statement, i.e., GSTR-2B
The Finance Bill, 2022, prescribes minimum time period for businesses with new GST registrations before they can go onto claim GST credit; the idea is to catch fraudsters who take new GST registrations just for the sake of issuing fake invoices, and claim credits.
Also, ITC cannot be availed now where registered businesses have defaulted continuously in payment of tax for a certain period. Further, where there is variance between outward tax payable by the taxpayer in respect of his outward supplies in GSTR 1 and the actual output tax paid by him in GSTR-3B, or if the taxpayer claims credit more than what he/she is eligible for, in those scenarios, too, the ITC cannot be availed.
"These tighter laws proposed will put genuine business dependent on the reports generated on the parameters which are more subjective in nature and may involve various pragmatic situations. These restrictions may further put entities to revisit their cash management system,” he further said.
Pritam Mahure, Pune-based independent chartered accountant, echoed similar concerns. He suggested that the government must take the onus and ensure compliance by the vendors,stressing that responsibility should not fall on honest genuine businesses.
"We already have very tighter set of conditions to claim input tax credit. By imposing more restrictions, the ease of doing business would be significantly affected.Seamless credit is simply becoming seen less. I am a bit disappointed,”
Mahure told ETCFO. “Such changes will further stoke litigation not that it is any less currently,” he said.
Under the existing GST laws, a registered business is entitled to the input tax credit if s/he meets four conditions. First the business/ company must be in possession of a tax invoice issued by a supplier, has received goods or seervices, then has furnished the return, and last has paid the taxes to the government.
In case the supplier/ vendor does not furnish return within the stipulated time period or not pay taxes to the government in the stipulated timeframe, then the business isn’t entitled to avail credit as per the law. This ITC restriction is already challenged in the courts with arguments that businesses, who are fully compliant, cannot be denied credit for non-compliance of their suppliers.
ITC Restrictions don’t end here
An indirect tax head at a large multinational further, concurring with the above two experts’ thoughts, pointed that the restrictions to claiming credit don’t end here and what is more worrying is that the government has subtly stated in the amendment that it can prescribe more scenarios in the future where input tax credit cannot be availed.
"It's a travesty of justice. Unfortunately, we seem to be going in the wrong direction. Overall, the rules look too harsh. Too much power is being provided to taxmen," the tax head, who did not wish to be identified, told ETCFO.
MSMEs to face the brunt
Imposition of more ITC restrictions is seen hurting the MSME industry the most. That sector is already low on resource bandwidth, and neither can afford litigation on such matters, experts said adding they will find it difficult to comply with the new stringent laws.
While the proposed amendment would affect the industry at large, the mid cap and MSME sector, who do not have requisite physical or financial bandwidth to comply with such stringent norms, would be hurt the most.” Gunjan Prabhakaran, Partner and Leader - Indirect Tax, BDO India told ETCFO.
Archit Gupta, founder and CEO at Clear, which is a Bengauluru-based fintech firm providing GST returns filing technology solutions, said while the GST changes in the Budget may put more onus on businesses to ensure compliance, but at the same he added, they reflect the government’s larger vision of enabling GST T credits through technology.
"In the distant future, the paths of compliance and the supply chain are expected to converge. The Chief Finance Officers in the organisations must rely more on technology focused approach to ensure smoother compliance and lead the compliance challenge head on, ” Gupta signed off.
Over the recent months, India has been detecting significant GST frauds. So far in the first three years of the goods and services regime, a total of Rs 1.19 lakh crore worth of tax frauds have been detected, according to the website of Directorate of Goods and Services Tax Intelligence (DGGI), the enforcement agency under the finance ministry.