Frequent changes complicating GST compliance

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The trade and industry, which initially hailed the rollout of the unified tax system, now believes that the government has faulted on the implementation of the Goods and Services Tax. Urging immediate intervention for transforming GST into a “Good and Simple Tax”, senior president of Madurai-based Tamil Nadu Chamber of Commerce and Industry S Rethinavelu said, “This unified tax system has over the last two years acquired the unique reputation of driving thousands out of business. “When Prime Minister Narendra Modi announced the rollout of GST, he had categorically stated that it was being introduced to remove ‘tax terrorism’. But the trade and industry today perceive that GST implementation has reached the zenith of tax terrorism.

“Immediate intervention is therefore critical at this juncture lest the trade, industry and services sector are thrown out of gear and the economy severely crippled,” Rethinavelu said. The system has turned out to be intensely complex and convoluted since its enforcement from July 1, 2017, he said. “Notwithstanding the high tax rates, the tax system has become incomprehensible even for the enforcing tax officials, chartered accountants and tax experts due to innumerable amendments, circulars, and clarifications that are issued almost every other day by the Union Finance Ministry,” he added. Time and money are being spent to understand and adhere to the interpretations, complicated tax procedures, and formalities. “The government should have consulted the trade and industry. It would have helped avoid confusion and mental trauma,” he said and added that the FMCG sector has now started to face the implementation muddle.

Explaining the prevailing trade practice in FMCG trade, he said “suppliers in the normal course offer discount to dealers, and at times go that extra mile to help them (dealers) dispose of the stock. Such discounts were not subject to tax. However, the clarifications issued by the Central Board of Indirect Taxes and Customs, vide a circular dated June 28, 2019 (two years after the implementation of GST) are ambiguous. The circular states that if the discount is given by the supplier of goods as a post-sale incentive to the dealer, then the (special sales drive) discount should be treated as consideration of service (by the supplier).

The dealer should raise an invoice on the supplier (for such service), and charge 18 percent GST. “This clarification is beyond imagination. How can the supplier-dealer relationship change as “supplier of service and recipient of service” in the same transaction?” asked Rethinavelu, before continuing “even if a dealer decides to sell at throwaway prices to relinquish his stock, he will have to reconsider his decision, and this incidentally is against the prevailing practice in FMCG trade. If such ‘unrealistic and illogical’ clarifications are enforced retrospectively, small and medium traders will have to wind up their business. The CBIC must immediately withdraw this ‘highly contentious and impracticable’ circular, he said.

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