Recently non-executive chairman of Infosys Nandan Nilekani discussed the approaches to simplify the GST filing process that has been making headlines for all the wrong reasons. Especially the small medium businesses (SMBs) are facing difficulty in meeting the complex guidelines of GST returns. Nilekani views on simplifying GST returns focused on two key principles – workflow model and the System based approach. Basically, the workflow model allows businesses the flexibility to upload their sales at a periodicity of their choice and allows for input tax credit (ITC) to the buyer on acceptance. Whereas, the System based approach that the government had been examining is based on doing periodic back-end matching, and throwing the mismatches back to the buyer for resolution.
In both the cases, the government has made it abundantly clear that Input Tax Credit will only be allowed if the suppliers invoice is uploaded. Therefore, the risk of losing substantial credit is significantly higher if one follows the System based approach. The strength of workflow model rests on reducing or removing the uncertainty of Input Tax Credit (ITC) for a buyer, making the entire process an integral part of their business workflows. The system of continuous upload and continuous matching is more reliable, since it completely removes the risk, uncertainty, and complexity for a small business. This further allows Input Tax credit to be claimed easily, brings greater transparency into the system and reduces the uncertainty on mismatched invoices. The TechObserver.in team spoke to some of the experts, industry bodies and tax consultants to understand different dynamics of simplification of GST returns.
GST returns: Workflow model v/s System based approach
“There are two simplification approaches being currently floated including a ‘System’ based approach – this emulates VAT wherein both the sales and purchase bills are uploaded, and automatic matching is done centrally by the system and the other approach is ‘Business Workflow’ based – here the supplier uploads the invoice and the seller accepts and is immediately eligible for input tax credit (ITC). The original idea made simpler here. I strongly believe that matching of invoices which is inline with business relationships is the best wayas it gives business owners better control of their ITC. This will mean lesser risk for businesses concerning errors in matching and more certain outcomes regarding input tax credit. Also the workflow-driven option is much simpler and is easier to follow which will lead to more effective compliance,” said K. Ravi, President, Federation of Karnataka Chambers of Commerce & Industry (FKCCI).
Agreeing with view of Ravi, S. Prakash, Advocate and Income Tax Consultant said, “The matching of invoices should not be the duty of the GSTN and it should be left to the trade and industry, let the seller upload the bills he raises and the buyer accepts, rejects or corrects the same. This type of matching concept is very friendly as the traders will know better from whom they are doing their trade. Moreover, in number of cases the B to B invoices are raised as B to C and thus many of the retail traders are denied the input tax credit, and this will harm the concept of the GST input tax mechanism.”
“We would like to recommend workflow process because businesspersons can check ITC benefits as soon as they approve purchases. While in System flow one has to wait for a month to know about his ITC and by chance if there is some kind of mistake in transaction end user himself need to find out and rectify that error to avail benefits of ITC,” said Gaurang Bhagat, President, Maskati Mahajan Association, Ahmedabad
On the other hand, Bharat Goenka, Managing Director, Tally Solutions whose firm works with large number of Indian SMBs said, “Nandan Nilekani has actually gone back to the basic tenets of GST, and its promise for a simple system to comply with, and a complex system to evade tax. If this proposal gets implemented, we should see an enormous boost in revenues as it is a self-correcting system, with almost zero burden for the honest taxpayer. It also removes the uncertainty for small businesses, and allows them to focus on their business – since this simply integrates into their business flow. It can be game changing for this infant tax regime, and game changing for India if the proposal is accepted.”
“The current system of invoice uploading should be changed to one without any deadline. The seller should be allowed to upload the invoices on a real time basis, as and when he likes – monthly, daily, weekly. At the same time, the buyer can view these invoices which are being uploaded by the seller on a real time basis and he should be allowed to accept those invoices to confirm his ITC. Once confirmed, the invoice should be locked in to the system,” said Delhi based CA Puneet Oberoi.