GST rules need a tweak to help businesses
Swami Vivekananda once said if you really want to judge the character of a man, “Watch a man do his most common actions; those are indeed the things which will tell you the real character of a great man”. This holds good for the government too.
After a slew of big bang reforms – New Income Tax Act, GST 2.0, New Wage Code, RBI, FEMA Rules relaxation in terms of IDPMS/ EDPMS, etc – the test of character of these forms hinge on how the government manages the micro aspects.
On this count, here are some bottlenecks in the GST system, which if addressed can improve the ease of doing business substantially.
STREAMLINING GST
One, Section 16 of the GST Act stipulates that if the payment for the invoice on which ITC has been taken and not paid to the supplier within 180 days , the ITC should be reversed.
This is a contentious rule, as these are commercial decisions between the buyer and seller and there will be several disputes, quality issues, performance issues etc relating to the purchase and hence payment to vendor might be withheld.
The government on its part should see whether the GST collected has been paid. Reversing the ITC in this case is in a way interfering in the commercial decision of the company. The buyer by not paying the seller the invoice, will not in way impact the government in terms of GST collection / compliance. Hence this Rule should be scrapped.
Two, section 17 of the GST Act deals with Blocked credits specifically, like those relating to (a) purchase of vehicles by a corporate, (b) Food beverages, outdoor catering, health services, (c) club membership etc.
The intention of the government with regard to GST is to ensure that the seamless flow of Input tax credit (ITC) across the supply chain is not broken. But here the above nature of expenses are disallowed from availing ITC which in many ways leads breaking the flow of the ITC.
Huge sums of money are also stuck in litigation at various levels as the officers during assessment even disallow expenses relating to telephone expenses of employees, expenses incurred on factory disinfectant etc.
All the above including those specifically blocked are essential for running a business. Hence blocking ITC in this case fails the spirit of GST. For example, construction of building in a factory is for the purpose of business , then why is ITC denied? Membership fees paid to a club for an employee is also way of remuneration so , why is the ITC denied? Moreover if we do not have any blocked credit, it will relieve the system of litigations.
Three, with regard to expenses on Corporate Social Responsibility (CSR) spend as per the Companies Act, 2013, ITC on those are denied. Corporates spend on CSR activities like education, social infrastructure, environment, etc, which otherwise would have have had to be spend by the government. Hence , this should be encouraged by allowing the ITC and th expenses should be given tax deduction under the Income tax Act 1961 (Section 37) while computing profits.
This is not a concession but encouragement to corporates. To ensure that corporates are genuinely committed to CSR and do not undertake it just for tax benefits, the government can enact policy guardails.
Four, Section 79 of the GST Act stipulates deposit of 10 per cent pre-deposit for appeals made to the first level adjudicating authorities. There are several companies especially in the SME sector that may not have the financial wherewithal to deposit such an amount.
There are usually disputes on the interpretation of the law at the initial period of GST assessmet.
Hence, the Rules can be based on the financial strength and the pre-deposit can be eased to avoid working capital issues.
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