One of the specific challenges to the GST model is the compliance burden. In COVID 19, businesses have cash crunches. Yet, GST compliance relaxations have eased the burden. Still, the impact on the national GST pool is adverse. The GST collection is 45%, falling short of the target by Rs. 1 lakh crores. The government has to balance the beam. On the one hand, it has to meet the expenses and on the other hand it has to give relief to businesses.
Jharkhand has recently hiked its fuel prices to cope up with the lockdown losses. Is this the plan? To grant relaxations and make the economic tussle even worse after the lockdown? Also, one should not forget the impact these relaxations could have on the GST pool.
Easing the Pressure- GST Compliance Burdens Relaxed
The CBIC notification dated 3rd April 2020, had eased the compliance burdens. Some of these were, reduced interest rates and a waiver of late fees. It also included an extension in the passing of orders, sanction, appeals, and TDS/TCS returns. Although, there is no relaxation in cases of tax invoices. Further, the restriction of Rule 36(4) on Input Tax Credit was also relaxed.
From February 20 to August 20, ITC can get claimed without Rule 36(4) restriction for GSTR 3B. However, the restriction will apply after the above period. There is no cumulative basis for the said period. Excess credits may cause a problem that has to be reversed timely. An extension was also granted to Composition levy dealers having a turnover of less than Rs. 1.5 Cr. Extension for the validity of E-way bills.
The GST council also slashed late fees and halved the interest rates. This applies only to small businesses. They have also waived the late fees for summary returns and GSTR 3B for a period between July 01 to September 30. Late fee was also capped at Rs. 500 per return between July 2017 and January 2020. The interest rate was also halved to 9% for late filing for business having a turnover of Rs. 5 Cr. between February and April. This will be applicable until September.
One of the most important concerns is of Cess, which will be the agenda for the next council meeting. States need to get compensated for GST losses during the first 5 years of implementation. Undistributed Integrated GST was utilized to pay for losses from December to February. This amounted to Rs. 36,400 Cr. The concerns over guarantee and interest rates still haunt borrowers.
These relaxations have addressed businesses’ concerns. Concerns still remain for businesses having blocked credit ledgers due to pending investigations. This has mounted their financial pressure. Temporary blocking with a digital investigation is required. This is possible due to the GST framework being online.
Has the GST Model Worked Well during COVID 19?
The universalization of all indirect taxes into GST was a giant step. But businesses have grappled with compliance burdens. Were relaxations like extensions, zero late fee policy, enough? Many businesses were very perturbed when they thought of the coming months. As in the future, no relaxation would exist. Yet, the GST model has worked well when it comes to transparency. Especially, considering the GST online portal. Other merits include no cascading effect and less confusion.
When asked about the efficacy of GST model during COVID-19, CA Preyash Parekh replied: “The GST model has worked well in COVID 19. The relaxations offered by the government have eased the pressure for many companies. Now the GST refunds get processed faster. This was essential especially during COVID where companies are stuck in a cash crunch.”
GST evasion in the lockdown suggests that the GST framework is crippling. One such case is of Kishore Wadhwani, who evaded GST of about Rs. 225 Cr. The DCGI stated that the accused had set up eight businesses. These were in real estate, hospitality, and media. He used these businesses to launder money.
Sector-specific Impact Analysis
The GST situation of various sectors is as follows:
Hospitality and Tourism
The GST on input services and the raw material gets paid first. This later gets passed on to the ultimate consumers. Although, due to the pandemic, businesses alone feel this pinch. Hospitality and tourism sectors have large pools of credits. Hence, they have to pay the reverse charge in cash. This has resulted in increased cash pay-out at the expense of credit accumulation. For a specific period, these credits could get discharged. Further, HRAO has pleaded Odisha government to waive GST . They have also pleaded to extend interest-free financial assistance.
Telecom players have to pay a reverse charge on government charges for spectrum. The problem is quite like hospitality in that this sector has large pools of credits. Pressure is high due to limited customer addition. Yet, increased mobile data usage is covering up for the same. Reliance, Vodafone, and Bharti Airtel are seeking 18% GST for a 6-month period. GST must be levied on actual payment and not on invoices as they get delayed during the pandemic.
The FMCG big players like Britannia and Nestle have recorded an increase of 26% in net profits. The FMCG sector has asked for a reduction of GST from 12% to 5%. CRISIL has estimated this industry to de-grow at 2% to 3%.
The 40th GST Council meeting had rate rationalization as an agenda for textiles. But the government postponed the same. There has been a reduction in interest rates and moratorium. However, the CITI had approached the government to announce relief packages for them.
Conclusion and recommendations
The pandemic has created a strain on the entire economy. Almost every industry is asking for slashing GST rates. The relaxations have also had a cumbersome impact on the national pool. Launching of schemes to help businesses rather than slashing GST rates is quintessential. For textile, the Interest Equalization Scheme is one helpful scheme. This has also helped in the past to ease financial duress. CITI has asked for an extension for 2 years besides subsidy rate enhancement.
Germany has introduced a 750 Billion euros relief package. This is meant to help companies boost their liquidity. Also, borrowing with zero interest rates has managed the situation better there. With VAT cuts, the support package will work wonders there. Italy has also provided relief packages of 25 billion euros with debt mortgages. The GST model has worked well in India and other nations. However, the pandemic has shrunk the national pool. With such measures and learnings, India can overcome the financial crisis by deferment.
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