Why are GST taxation reforms critical this year?

Experts believe that the economy tends to take a back seat when political and religious issues take precedence over everything else. Amidst all the protests and rallies around the CAA bill, India seems to be forgetting that the new financial year is just around the corner and we, as an economy, can't afford to continue with our rather slow and painful pace of growth.

India seems to be struggling to meet its Goods and Services Tax Revenue Targets, and with collections wilting every month, it is important to focus on improving the GST system starting FY 2020-21. This article outlines some of the measures that will be undertaken by the Government explicitly around the Goods and Services Tax.

Electronic invoicing rolled out
Electronic invoice (e-Invoice) is a system under which Business to Business (B2B) invoices will be electronically validated by the GST Network (GSTN), and the data will be shared for further use on the common GST portal. Under this system, an invoice registration number (IRN) will be issued against every invoice by the Invoice Registration Portal (IRP) to be managed by the GSTN. This exercise will help auto-populate data while filing GST returns as well as e-way bills through invoice matching. E-invoicing is applicable for B2B invoices only, and the QR code that is generated on validation is required to be mentioned on B2C invoices.

E-invoicing was introduced on a voluntary basis from January 1, 2020, for companies having an annual turnover above Rs.500 crore or more in the preceding financial year. The same system was opened to companies with an annual turnover of Rs.100 crore or more in the preceding financial year.

Although the e-invoicing system was to be made mandatory from the new financial year, it has been defected to July 2020 because of the low percentage of registrations by businesses.

Simplified GST returns to be introduced
In its 31st GST council meet, the GST Network announced the implementation of a New GST Returns system. This system is expected to be implemented in April 2020 and will facilitate simplified return forms for ease of filing across all taxpayers registered under GST. Currently, in its trial phase, this New GST Returns System will be introduced in a phased manner with a view to familiarise users with the annexure forms of the system. The new return systems would follow a workflow-driven mechanism instead of the current supplier driven one requiring a lot more details including purchases from unregistered dealers - this could mean firms would be required to alter their Enterprise Resource Planning Systems.

Invoice uploading will no longer be limited to a window of opportunity, and taxpayers can upload invoices to the GST portal 24/7 and even approve or reject an invoice in real-time. Nearly 80% of the tables under the Return forms will be auto-populated, and taxpayers will have to fill in the fields for reporting outward supplies and availing of ITC on the basis of the invoices uploaded by suppliers. For those taxpayers reporting NIL sales can file their GST returns via SMS.

The introduction of these new forms is critical to the revenue collection under GST. This is because when GST was first implemented in 2017, the returns for FY 2017-18 were supposed to be filed by December 31 2018. This date was extended multiple times and further extended to January 31, 2020. Without the introduction of these new return forms for FY17-18 alone, taxpayers will be unable to file returns for FY 2018-19 and FY 2019-20, thereby adding to further shortage in revenue.

Fraudulent ITC claims to be curbed
In a bid to improve GST revenue collections, the Government has turned its attention to fraudulent input tax claims using fake invoices. This year the Government is working on tightening the noose around those committing tax fraud and is already starting to make use of technology and automated processes to enhance compliance. Frequent raids increased audits, and the use of artificial intelligence to detect bogus companies are just some of the ways fraudulent tax claims are being curbed. With any luck, the country should see a reduction in tax evasion numbers in the new financial year.

Taxation reforms, especially those under the Goods and Services Tax, are the need of the hour and stringent tax-related measures can potentially help the country get on the track to normalization.