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October 09, 2020

Why in news?

The GST Council’s recent meeting was able to make slight progress.

In what aspects progress was seen?

  • The progress is made in two respects, which includes,
    1. Simplifying the return filing process and
    2. Taking a tentative step forward in resolving the impasse over compensation cess.

What are the options?

  • Option 1 - The Centre raised the compensation payable to the States under ‘option one’ from ₹97,000 crore to ₹1,10,000 crore.
  • Under this option, the States can borrow through a special window of the Reserve Bank of India.
  • The entire principal and interest on the borrowing would be borne out of the cess.
  • Option 2 - This option involves the States borrowing the entire shortfall of ₹2,35,000 crore from the market.
  • The interest will be borne by the States.
  • Opting - While 21 States have opted for the first option, the remaining (largely Opposition-ruled) have opposed the terms.
  • The latter States are demanding the 14% annual increase in GST revenues to States that was written into law.

What did the Centre say?

  • The Centre has promised that all the dues of the States will be settled through the extension of the compensation cess beyond June 2022.
  • It has released ₹20,000 crore of compensation cess collected this year.
  • The opposing States should not insist on an escalation to the dispute redress mechanism.
  • This would delay and complicate the process for all States at a time when their need for funds is immediate.

What is the move regarding return filing system?

  • The intent to move towards auto-populated returns and invoice matching could check tax evasion and improve revenue collection.
  • From January 2021, taxpayers would have to provide details required in the GSTR 1 return alone, regarding outward supplies.
  • Other data pertaining to input tax credit will be captured from the suppliers and the net tax payable will be shown in the GSTR-3B return.
  • These measures show that the GST return filing system is moving back to its original design of ease of compliance and improved collection.
  • This move should be viewed along with requirement for businesses with turnover exceeding ₹500 crore to file e-invoices from October, 2020.

What is another good move?

  • Almost 93% of the 1.3 crore GST registered taxpayers are smaller businesses having less than ₹5 crore of annual turnover.
  • Providing leeway to these smaller businesses to file returns on a quarterly basis from next year is a good move.
  • This move will provide relief to the majority of the businesses, cutting down their compliance costs to a third.
  • However, there could be glitches for a few quarters.
  • With small taxpayers filing quarterly returns, input tax credit could get blocked for larger taxpayers (who file on a monthly basis).
  • Yet, the step may lead to larger companies persuading their suppliers to be more compliant in filing returns.
  • These recent changes might further the shift of entities from the unorganised to organised sector, so far stalled by loose implementation.


Source: Business Line

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