The steep fall in tax revenue, and the low rate of collections under the composition scheme in the first quarter of GST roll-out has forced the government to discuss ways for checking tax evasion and improve compliance, including speeding up work for early introduction of the e-way bill system. The stride from the government towards ensuring the removal of pain points for businesses over the six months period since the implementation of the goods and services tax (GST) was simultaneously matched by efforts to keep the system foolproof from the point of view of revenue leakages. Tax payers though have not been daunted, with early revenue numbers pointing to the clear possibility that a number of them are skipping the entire value chain of scrutiny by the tax authorities. The high incidence of tax evasion has a bearing on the declining revenue collections, especially under the composition scheme, which was designed for small and medium businesses under the new indirect tax regime.
Around 15 lakh small firms have registered under the composition scheme so far (11 lakh till September), out of which about six lakh filed their returns for July-September till December 24 and paid a total tax of around Rs 250 crore. Supposing to be an average two per cent tax incidence on their turnover, the total tax amount translates into an average turnover of Rs 2 lakh for these firms during July-September, or about Rs 8 lakh for the full year if the data were to be annualised, given that the composition dealers are supposed to file quarterly returns under GST. Having said that the average annual turnover number of Rs 8 lakh is even less than half of the overall annual turnover exemption limit of Rs 20 lakh for registering under GST, implying high level of understatement of revenues by businesses.
Despite of the relaxation of norms from government with respect to tax incidence for composition dealers for July-September to one per cent for traders, two per cent for manufacturers and five per cent for restaurants, which was then again revised by the GST Council in its November meeting. And despite of the government's effort to reduce the compliance burden for businesses by increasing the annual turnover threshold for the composition scheme to Rs 1.5 crore from the earlier revised limit of Rs 1 crore. All these efforts from government didn’t improved the tax revenue collection, further it took a long slide further working the ideas behind introduction of biggest tax reform “GST”.
In the first quarter of the GST roll-out we witnessed low rate of revenue collections under the composition scheme amid the already falling revenues, which led the tax authorities of both the Centre and states converging into a huddle in December to discuss ways to plug the loopholes for tax evasion. In the backdrop of this, the government decided to speed up work for the technological framework required for an early introduction of the electronic way bill or e-way bill system, which had been earlier deferred till April 1.
Government viewed the e waybill system as an effective method to check tax evasion and compliance, and henceforth scheduled the implementation of E Way bill from January 16 on a voluntary basis. Prior to the implementation of GST, Karnataka, and many other states had stationary check posts. These check posts have now been abolished in Karnataka and many other states as well. But random checking of conveyances through the mobile squads still continued under the GST system. After the introduction of the e-way bill system, random checking of vehicles to implement the e-way bill system is underway. At this juncture, the effort is to educate and handhold the taxpayers to adopt the new system and over a period of time, implementation of the e-way bill system would lead to better compliance and would check evasion.
Other measures of government to plunge the loopholes in GST system:
—Bringing back of reverse charge mechanism of tax revenue collection chain to bring many unregistered dealers into the ambit of the GST regime.
—To build back end structure for invoice matching wherein the tax authorities will match details in GSTR-1 returns with the already-available information in their system through matching details of sales and purchases available at their end.
With respect to RCM, it was believed that dealing with unregistered smaller businesses would be increase the compliance burden for big businesses and thus, effectively lead to sidelining of the small businesses. But now the view working for its reintroduction is that a small business would not want to lose out and instead register under the GST regime. This would help in — easier business compliance for big businesses and higher tax base for the government.
Industries concern over E way bill:
—Possible route for re-emergence of supply chain bottlenecks
—Fear of transfer of discretionary power to tax officials
—Time to adjust with the new technological system of e-way bill in absence of clarity on registration and usage of portal
—Absence of IT system in place to generate eway bills.
There is always a both positive and negative side to every action similarly both these attributes are attached to e way bill as well. While some level of tax evasion will be checked, eway bill may not be able to check it completely, but at the same time it adds a layer of compliances which is against the stated objective of government of ease of doing business.
So why early Eway bill then? Shouldn’t we be supposed to be ready before bringing up a mechanism which is totally technology driven in absence of technology in the first place itself. Well the answers lie in the early havoc that GST has suffered in Form of dipping tax revenues, with monthly revenues slipping below the targeted level of Rs 91,000 crore early implementation of e-way bill system was needed badly and so the date of February 1, 2018 as the date for mandatory roll-out of the e-way bill system for movement of goods between states across the country, as against the earlier approved date of April 1. But for both inter-state and intra-state movement of goods under the e-way bill system, the Council had approved the deadline of June 1, with states having the provision to decide their own deadlines for implementation of e-way bill for intra-state movement of goods before June 1.
So what is E Way bill then?
- It is a technological framework to track intra-state as well as inter-state movement of goods of value exceeding Rs 50,000 for sales beyond 10 km.
- The tax officials will have powers to check the e-way bill at any point during the transit to check tax evasion.
- Permits issued would be valid for one day for movement of goods for 100 km and in same proportion for following days.
Since the whole thing of eway bill is dependent on technology, this means that every registered supplier will require a prior online registration on GSTN portal for movement of goods valuing more than Rs 50,000.
Conclusion: The GST rules are being drafted and we are expecting a good law which will be fair to first the taxpayer and also ensure that the government’s tax revenue is taken care. With eway bill on roll out we would obviously be requiring an erp software that does this job to perfection. And Tally.ERP 9 has always stood up for new changes in the ERP system grappling every aspects from GST network and trying to perfection it in the services it delivers.
