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October 14, 2020

Government may consider allowing deposit of GST on cash basis

by CA Shivam Jaiswal in GST

Government may consider allowing deposit of GST on cash basis

Introduction of GST is considered to be a significant step in the reform of indirect taxation in India. Amalgamating of various Central and State taxes into a single tax would help mitigate the double taxation, cascading, multiplicity of taxes, classification issues, taxable event, and etc., and leading to a common national market.

In its report titled ‘Reimagining GST@3’, PwC said that the government may consider allowing India Inc to deposit GST on cash basis to assist them tide over the liquidity woes during the Covid-19 pandemic. The report also said that while formalising its support strategy for the industry in the next phase, the government could also consider suspending GST payments for select sectors during the Covid-19 period.

The current COVID-19 pandemic has made the entire world sit up and realise that medical exigencies are unpredictable and can cause a financial upheaval that is tough to handle. With the commencement of 2020-21 financial year the effects of coronavirus have affected the stability of the economy of 150 countries – jeopardising their lifestyle, economy, impacting business and assumption of common wellbeing which we had taken for granted. The lockdown has adversely have affected service sector like banks, restaurants, food vendors, and food delivery providers. India faced a huge decline in government revenues and growth of the income for at least two quarters as the coronavirus hit economic activity of the country as a whole. A fall in investor sentiment impacted privatization plans, government and industry.

The PWC report stated that cash liquidity support schemes that advance business continuity are the need of the hour. The government had announced a timely budgetary support scheme in line with the relief packages of various developed nations. Despite these steps, a huge ground remained to be covered.

Issues and Suggestions to overcome current crisis as per the PWC Report

1. Depositing GST on Cash basis

  • Taxpayers are required to discharge tax on their outward supplies as per the time of supply provisions prescribed under the GST law.
  • Generally, the time of supply is the earlier of the following – date of issue of invoice or date on which the payment is received.
  • There was a big decline in supply revenues across industries during the lockdown. The Government provided temporary relief to taxpayers by allowing them to delay the filing of GSTR-3B without payment of any interest from February to May 2020.
  • The complete shutdown of economic operations for almost 2 months also impacted the cash reserves of the Government.
  • Most companies are facing continuity challenges due to the huge fixed operational costs of running their businesses.
  • At this stage, a suitable amendment in the GST law to shift the time of supply from the date of raising the invoice to the date of receipt of consideration will boost industry sentiments and help them manage the cash flows better.

2. Suspension of GST for selective sectors

  • The damage caused by COVID-19 was not confined to only select pockets of businesses but it was a widespread issue that was expected to keep the economy sick for a longer time.
  • While the magnitude of the impact may vary from sector to sector, there were some sectors that have suffered the most and continue to suffer, like the aviation sector, retail industry, the banking industry, hospitality industry, automobile sector, realty industry etc.
  • Considering the impact on the economy, Government provided relief to the industry by extending deadlines for payment of taxes, return filing up to a certain period without any interest or penalty.
  • However, the Government should consider suspending the GST payments of several sectors such as hospitality, automobile and real estate which were severely impacted for at least six months.
  • This measure will provide much-needed cash liquidity to these sectors and ensure their business continuity

3. Non-reversal of ITC

  • Input Tax Credit (ITC) basically means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax.
  • According to Section 16(1) of the CGST Act, Every registered taxable person shall, subject to such conditions and restrictions as may be prescribed and within the time and manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
  • A specific list of business transactions is provided under the provisions of the CGST Act, for which ITC is restricted. One of the items covered in this list is ITC on damaged goods, i.e. ITC cannot be availed on goods which get damaged.
  • The lockdown has impacted supply chains of businesses to such an extent that the entire ecosystem across manufacturing and trading has come to a halt.
  • Demand has also witnessed a sharp fall during the lockdown. Products that have a short shelf life or are required to be kept in controlled temperature were damaged or expired during the lockdown.
  • Given the unmatched nature of the crisis, the Government should consider lifting the ITC restriction on damaged/destroyed goods during the lockdown period as a one-time measure.

Some other suggestions mentioned in the Report

  • The government should consider issuing clear guidelines around these critical issues such as eligibility of ITC on expired stock, intermediary services and taxability of discount schemes, keeping in mind the evolving international taxation principles and business models prevalent in the trade and industry.
  • It also suggested one-time dispute settlement scheme under Goods and Services Tax (GST). The government could consider introducing a scheme under the GST regime for voluntary disclosure of tax payments before the taxpayer undergoes GST audits.
  • The GST law had evolved over the past three years and the government had clarified several provisions after its introduction. Therefore, a one-time scheme to clear previous irregularities can be considered, which will help the industry in clearing past baggage and reduce litigation.

The GST Law & policies should be implemented to provide ease of business to dealers addressing burning issues in law and to make GST actually “simple” so that compliance level can be increased. The above suggestions if given due consideration would improve ease of doing business and enhance public satisfaction.

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