Covid-19 is likely to be a litmus test for GST Council, say experts

Experts say most businesses are exploring ways of optimising their cash flows by reviewing their input tax credit, including ways to liquidate the accumulated credits across states | Imaging: Ajay Mohanty
The GST Council is gearing up for a meeting in June, the first time after the imposition of the nationwide lockdown, amid the clamour for tax relief by industry lobby groups and pressure from states to shore up tax revenues. While the Council is likely to deliberate and come out with short- and medium-term measures to mitigate liquidity concerns of business, experts say it should not let go of the opportunity to expedite substantive reforms in the indirect tax system.

“The Covid-19 pandemic is likely to be a litmus test for GST,” says Pritam Mahure, a Pune-based GST expert. Tax experts agree procedural and compliance reliefs, so far announced by the government, are not enough for businesses to tackle various issues arising out of the lockdown, including the consequent loss of sales. “In the long-run, only substantive GST measures would help GST payers sail over the challenging times,” says Mahure.

On top of mind of almost all business leaders is the lockdown's adverse impact on working capital, making it difficult for them to pay GST in time. Most businesses wish to have a brief — three to six months — interest-free deferral of GST payments, says MS Mani, partner, Deloitte India.
For many small businesses, filing GST returns from home — with limited broadband bandwidth — has been a challenge. Digital submissions are difficult considering the voluminous nature of submissions, adds Mani.

Experts say most businesses are exploring ways of optimising their cash flows by reviewing their input tax credit, including ways to liquidate the accumulated credits across states. “The government could come up with a mechanism where GST collected is allowed to be deposited in instalments over the next 6 months or so,” says Pratik Jain, partner and leader indirect tax, PwC India.

Another key demand from industry is making GST payout on a 'collection' basis, and not 'invoicing'. “The reason is that in a lot of cases the customer may not eventually pay the amount invoiced and there is no way for industry to recoup the GST, which has been deposited,” says Jain. One idea that is floating in the tax circles is to allow offset of input credit accumulated in one state against GST payout in another state, at least for the central GST component.

According to Rajat Mohan, senior partner at AMRG & Associates, his advice to clients hit by the lockdown has been to develop procedures to proactively assess the impact areas in compliance and take requisite measures to address them.

Businesses must gather enough evidence on the entitlement of input tax credit on credit notes given due to a reduction of prices or a revision of contracts because of the lockdown, he adds. Also, businesses have to keep in mind that supplementary contracts establishing discounts in the wake of Covid-19 may not be accepted by the tax department. Further, goods that were in transit but not delivered are ineligible for input tax credit at the hands of the recipient.

Experts say some relief measures may entail legislative changes.


A case in point is liberalising the input credit provisions or bringing in input services for refund under inverted duty structure.

On the procedural front, the process of reconciliation between the vendor's invoices and the purchaser's records needs simplification. “In the Covid-era and beyond, businesses are looking for the government to provide detailed guidelines for conducting hearings and assessments virtually, through increased use of technology,” says Jain.

Mohan is of the view that the implementation of e-invoicing and new returns form at the earliest may help further simplification of the GST law.

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