GST law to rate businesses on their compliance
In view of the challenges faced by businesses in transitioning into the GST regime, and in order to incentivize dealers to comply with the provisions of the new legislation, the GST law proposes to rate businesses on the basis of their compliance with the provisions contained in the said law.
GST compliance rating is one of the important initiatives taken by the Government, to enhance the adaptability of the new law and ensure a seamless transition from the existing scheme of indirect taxation into the GST regime. Currently, there is no mechanism for compliance rating under any of the indirect tax laws in India.
Under the proposed rating mechanism, every registered dealer shall be assigned a GST compliance rating score, regardless of the size, nature, and turnover of his business, on the basis of parameters that would be notified by the Government in this regard. These parameters could include, inter-alia, aspects such as promptness in discharging taxes, timely submission of returns online, timely reconciliations, adherence to various time limits specified in the law, cooperation extended to the tax department, etc.
Further, with a view to ensuring continued compliance, the GST compliance rating score shall be evaluated at periodic intervals, intimated to the concerned dealer and updated in the public domain.
GST compliance rating and impact
The GST law proposes to accord preferential treatment to dealers with a high GST compliance rating score, while those having a low GST rating would invite enhanced surveillance from the department. To substantiate, one of the conditions for grant of a provisional refund to dealers, as per the Draft Goods and Services Tax Refund Rules, is a minimum GST compliance rating of five on a scale of ten.
Dealers, especially those operating on tight working capital, would hence, take compliances more seriously, so as to ease the pressure on their finances. Achieving a higher compliance rating, may, however, entail increased efforts on the part of the business owners. Further, a higher GST rating would enable businesses to attract more customers.
To elucidate, registered dealers would prefer making their purchases from those who have a higher GST compliance rating. Under the GST regime, the input credit on procurements would be available to the Purchaser (registered dealer) only if, the Supplier (registered dealer) uploads the details of the supplies made by him to the former, using his GSTIN (Goods and Service Taxpayer Identification number) in the GSTN (Goods and Services Tax Network).
A high GST rating serves as an assurance to the purchasers that, the input tax credit for the purchases made by them would, more or less, be promptly made available to them, by their suppliers. Purchasing goods from dealers with a low GST rating could possibly impair their ability to claim input tax credit on time, resulting in unwarranted cash outflows by way of monthly tax payments.
Dealers would want to focus more on managing and expanding their businesses rather than pursuing their suppliers for uploading details of the sales made to them, on to the GSTN.
In view of the above, the GST compliance rating mechanism can be perceived as a very effective tool, used by the legislators, to inculcate and enforce a sense of discipline amongst the business class, when it comes to compliance with the provisions of the new law.