Proposing a Comprehensive Amnesty Scheme for GST Compliance Challenges

Request for an Amnesty Scheme in GST – 2023

The Goods and Services Tax (GST) Law was implemented in India on July 1, 2017, aiming to establish a unified tax system under the slogan “One Nation, One Tax.” However, this approach has evolved into a more complex framework, often described as “One Nation, Seven Different Taxes.” Since its introduction, over 1,000 notifications, circulars, and clarifications have been issued under GST Law.

E-Invoicing and Compliance Challenges

GST compliance has recently become more stringent with mandatory e-invoicing for taxpayers with a turnover exceeding ₹500 crores, which was later lowered to ₹10 crores, and is now set to reduce further to ₹5 crores starting January 2023. As a result, manufacturers, traders, and various industries struggle with numerous practical issues and face challenges navigating the complex return filing process. This has led to frequent mismatches in filings, particularly between Form 2A, 2B, and 3B, resulting in continuous notices from GST authorities. Moreover, amendments to e-way bill regulations have compounded these challenges.

Builders and Input Tax Credit (ITC) Issues

Builders currently face significant hurdles, particularly regarding the inability to claim Input Tax Credit (ITC) on raw materials like cement, previously allowed under the Service Tax and VAT regimes. Presently, the GST rates are limited to 1% for affordable residential units and 5% for others. Unlike the pre-GST era, there is no longer a compounding method available for return filings. This change means that builders must account for GST at 28% on their purchases, with no ITC eligibility, while their GST liability remains capped at either 1% or 5%. Consequently, the full cost of additional GST is embedded in the overall pricing of finished products, leading to increased costs for consumers. The government has yet to offer a dual option system, such as:

• Remitting GST liability at 1% or 5% without ITC
• Charging GST at 18% while permitting corresponding ITC claims

Struggles of MSME and Smaller Businesses

Micro, Small, and Medium Enterprises (MSMEs) and small-scale industries are particularly affected, as they grapple with the requirements of filing multiple returns, particularly when their turnover is below ₹5 crores. This situation is exacerbated by the absence of a provision for revising monthly returns. Additionally, differing interpretations of GST rates across states, as per Section 96 of the SGST Act, lead to inconsistent rulings and confusion regarding compliance.

Delay in Filing and Associated Penalties

Taxpayers experience penalties and interest charges of 18% for delayed return submissions, coinciding with systemic issues in the GST Department's software that failed to adequately handle such delays initially. Consequently, many taxpayers have been unfairly penalized despite delays resulting from technical difficulties rather than negligence.

The Need for an Amnesty Scheme

In light of these challenges, particularly following the limited relief provided during the COVID-19 pandemic through an amnesty scheme in 2021—which merely addressed late fee reductions—it is imperative to propose a comprehensive Amnesty Scheme for GST dues.

Proposal Highlights:

• Waiver of interest and penalties for taxpayers, particularly for the first two to three years post-GST implementation.
• Recognition that the introduction of GST was accompanied by commitments to minimize taxpayer harassment, including tolerating minor discrepancies in compliance.

After five years, ongoing scrutiny from GST officers regarding ITC claims and other discrepancies continues to burden compliant taxpayers. The extension of assessment periods, along with regulations concerning payment delays exceeding 180 days, places additional pressure on businesses. The current GST framework effectively prevents ITC claims related to purchases necessary for immovable property and vehicles owned by business executives.

Conclusion

Given these numerous challenges facing the business community in India, the implementation of a well-defined Amnesty Scheme for GST is essential. Such a scheme would address the systemic issues, relieve financial burdens, and support compliance efforts, ultimately stabilizing the business environment.