GST compliance to hit micro firms soon

Micro-firms will soon begin to feel the heat of the government’s tax enforcement drive, with key compliance measures covering larger businesses being made applicable to them, too, over the next few months.

From next month, firms with sales below Rs5 crore—defined as micro firms—will not be able to generate the electronic permit (e-way bill) for goods transportation if they have defaulted on filing return forms for two consecutive tax periods.

The National Informatics Centre, which runs the portal for generating e-way bills, will activate this feature for all firms from 1 December irrespective of their turnover, NIC said in a statement posted on its portal. From 15 October, this compliance rule has been applicable for bigger businesses.

The government had so far kept compliance enforcement measures to larger firms, but the e-way bill restriction shows that after about three-and-a-half years of rolling out goods and services tax (GST), it is going for a full-fledged enforcement drive. Small businesses, a politically significant segment of the economy, have so far enjoyed considerable compliance relaxations in the transition period of GST, but the revenue loss during the pandemic has forced authorities to extend the compliance drive to cover them as well.

Also, there is a plan to make electronic invoicing, the process of real time validation of business-to-business transaction details at the NIC portal, which is currently applicable to businesses with Rs500 crore sales, and to those with Rs100 crore sales from 1 January, to all businesses from April.

These moves assume significance as tax evasion, especially among small businesses, distorts the industry, making defaulting firms more price competitive than firms that contribute to the exchequer. Tax non-compliance among smaller firms is rampant in certain segments of the industry such as auto components, according to an industry executive, who spoke on the condition of anonymity.

“The monthly tax return GSTR 3B shows transactions at the aggregate level based on which taxes are paid and hence two consecutive defaults point to non-compliance. After hand holding businesses in the transition period, the authorities now expect firms that are liable to pay taxes to file returns on time. In case of technical difficulties, companies are free to approach the commissioner to get relief," said Abhishek Jain, Tax Partner, EY.

"Extending the restriction on generating e-way bills to all firms irrespective of turnover would force them to file tax returns on time, improving the overall compliance levels," said Rajat Mohan, senior partner at chartered accountants firm AMRG & Associates.

“With this change, December will see better tax fillings and revenue collections would also improve marginally on this account," said Mohan.

E-way bills are needed only for transportation of goods and the restriction will not affect service providers.

Small firms still enjoy some relaxations. Firms with less than Rs2 crore sales are exempt from filing annual return and those with sales up to Rs5 crore are exempt from filing GST audit report," explained Jain. (ends)

Source: Live mint
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