Even though the Goods and Services Tax Council is likely to approve the ‘fusion model’ for tax returns generation on Friday, its implementation could take 9-12 months, as the process would require changes in the GST Acts by the Centre and states, designing of new forms and IT-related preparedness including a long-testing schedule. This would mean that invoices-matching on a large scale, which is crucial curb GST evasion and boost compliance, would take longer to materialise, too.
Under the new model, cleared by a group of ministers recently, taxpayers are spared the job of filing returns. The IT system, run by the GST Network, will produce monthly returns based on supply data uploaded and inward supplies accepted. Invoices-matching would be done through a ‘semi-automatic’ credit reconciliation process.
Confirming that the new system might take more time, a senior official said the idea was to ensure that once it is implemented, it runs free from glitches. “Meanwhile, we will still have data available from GSTR-3B (summary return) and GSTR-1 (outward supplies form), which would help us in matching outward sales data. The data being generated from e-way bill from April will further aid in curbing evasion,” the official said.
Currently, the taxpayers are required to file a summary return (GSTR-3B), which contains details of self-assessed tax liability and input tax credit (ITC). Since the model doesn’t allow matching of purchase and sales of suppliers and recipients, it is prone to evasion.
In November last year, the GST Council had diluted the comprehensive return-filing, that was initially proposed; it suspended GSTR-2 (details of inward supplies) and GSTR-3 (summary of sales, tax liability and ITC) owing to taxpayers complaints over high compliance burden. However, the filing of GSTR-1 (details of outward supplies) along with GSTR-3B was continued. Although the current system is to last only till June-end — given that a alternative foolproof system is unlikely to be ready by then — it is likely to be extended further.
“The new model needs ample time before the same could be implemented. Current GST filing model was finalised and documented way back in October 2015. But even after more than 20 months, several issues were experienced in the execution, which led to its eventual scrapping. GST Council should note that new model would require changes in law, structuring of new forms, development of technology around it and finally government would again need outreach programmes for the final user,” Rajat Mohan, partner, AMRG & Associates said.
According to the GOM-approved model, there will be a facility for sellers to continuously add invoices and for buyers to view them. The system could allow the buyer to lock the invoice after which seller can’t edit/delete it, making it a confirmed liability of the seller.
The system will periodically, say quarterly, generate a list of suppliers defaulting on tax payment and the tax man could focus on them. If a supplier doesn’t pay the tax even after action taken by the tax man, the buyers will face reversal of input tax credit or ITC. To reduce the risk to compliant taxpayers, “high-risk” assessees will be identified so that instances of credit reversal are minimised. The system would try to ensure credit flow from high-risk suppliers by making them deposit advanced tax.
The new model is a fusion of the two systems proposed after the original design failed to take off due to its cumbersomeness. While a committee of tax officials recommended a system where credits could be given on a provisional basis to a taxpayer on the basis of self-declared invoices, the GoM thought this could be potential revenue risk. The model mooted by Infosys chairman Nandan Nilekani also was to be hassle-free for taxpayers as it involved system-generated returns (rather than filed by assessees), but the ministers’ panel again felt that it lacked a provision for reversal of credit in cases where excess/undeserved credits are taken.