Tax culture under GST to move from relaxed to alert mode, says Kulkarni

HERALD: GST has finally been launched. What are the benefits of the new tax regime?

PARIMAL KULKARNI: The small scale dealers who have a turnover of less than Rs 1.5 crore who are not covered for Central taxes also the service industry which were not been assessed by state taxes – under GST all these will come under both the Centre and the State and will have a common tax base. The additional benefit is that now you will have a common tax base, rates and exemptions throughout the country rather than state-wise benefits. Further there will be no Form C and F. This will lead to better assessment and enforcement.

HERALD: So what is the difference between the earlier regime and this? What are the problem areas?

PK: In the new regime there is a sea change in the documentation base. GST is more focused on documentation, accounts, records, invoice records. All tax credits are going to be affected unless one as an assessee is GST compliant. Also your supplier and customer should be GST compliant. The major change in GST is that the whole gamut is based on the law that either you buy goods and services from a GST compliant person. There is a section in the law which has been introduced that if you are a GST registered person and you buy from an unregistered person you have to undertake all the compliances as if you are the person liable to pay the tax. This is a problem area as any person who is registered under the GST and even if he has a turnover of less than Rs 20 lakh and the moment he registers he cannot claim that exemption on Rs 20 lakh. The full compliance affects him, including filing of monthly three returns and the annual returns, which means 37 returns in a year. Also, the industry is not willing to keep records on monthly basis and deal with unregistered suppliers. This is a big issue and the whole tax culture of the country is going to move from a relaxed accounting method to a very alert accounting model.  

HERALD: What happens if there is error in filing the returns? Many may not be computer savvy? 

PK: Errors and rectifications which were being treated in a very casual way have now to be looked at in a more focused and alert manner on why one is making errors. Why an assessee should not be able to do things in a correct manner. If a person buys a car he will learn how to drive it, if he buys a mobile he will learn how to use it. So why can’t the same person learn how to do accounting and file correct returns? Why people are not willing to learn computer to file their taxes or even appoint a right person to do their work? I appreciate that inspite of being less computer literate he may have done good business but he also need to learn computers now and be responsible towards his country’s tax laws and be tax compliant. Here GST will bring in a change.

HERALD: How long will industry take to settle down?

PK: My question to your question is that how soon are you willing to drive your car? There are big industries who have already gone public by saying that they are ready for GST. The other small industries say that they do not have the time. So if today they are not willing to move to the new regime then it will be a difficult situation for them as they will be termed as non-compliant. And why should one be non-compliant? If one does his business he should be compliant. I do fear that a lot of small businesses are going to be affected. On the other front I do agree that GST came up in a very short notice and the industry readiness appears to be on the low side. Even if the person has migrated to GST the question is whether he understands what is to be done in GST. The hand holding exercise has to be present for next 3-6 months. It is good to have GST but the government should keep the penal provisions and the assessment provisions little more liberal for at least one year. This may help in getting people accustomed to the new tax regime.

HERALD: What steps should the traders take to stay compliant?

PK: Immediate step one has to take is that he should first of all see that the invoices which he is going to raise from July 1 are GST compliant. He has to find out what his reverse charge compliance will be if he is dealing with unregistered people. If he is dealing with registered people then they are giving him proper invoices and they exchange their GST number with each other. Thereafter he has to see that the software and the accounting package he is using are capable of being complaint in such a way that he can record his transactions and finalise them on a monthly basis so that his return filing is smooth. No longer will he be allowed to finalise his accounts at the end of the year. It has to be done on a monthly basis. 

HERALD: There are three returns to be filed every month under GST. What are they?

PK: Primarily, whatever one sells, has to be reported on the GSTN website by the 10th of the following month. This has to be done via two methods. (A) One is those whom the credits are going to be available which is B2B transactions and (B) for those credits are not going to available in B2C transaction. Thereafter the person to whom the goods have been sold is eligible to take the credit, this sale will reflect in his second return, which is called GSTR 2. And, when it reflects in his return, he will then decide whether he is eligible for credit or not or he can interact back with his supplier or seller and exchange between them and try and finalise this by the 15-17th of the following month to file the second return. These transactions will be auto populated, almost similar to 26A Form. And then whatever balance tax one has to pay will have to be paid and then filed the third return by 20th of the following month. The rectification on credit and debit notes can be done in the September of the following year or by December when the annual return has to be filed.