India: Taxing Times: With GST, A Multi-Location Service Provider Would File At Least 37 Returns Per Year

Last Updated: 12 September 2017
Article by Abhishek Jain

With epochal decisions being made by the GST Council in Srinagar, India, now is soon expected to hop on to a new tax bandwagon – GST. Touted as a reform to unravel the various convoluted knots of the current state and central levies, GST is expected to create a seamless nationwide market in India.

Identical to most reforms across the globe, GST too is expected to be a mixed bag of pluses and minuses for a business. Of the various advantages envisaged under the GST era, the focal one for most businesses is the erasure of a perplexing array of taxes on a single business transaction with some taxes like CST, entry tax, stock retention VAT reversal, etc becoming a cost as well at each limb of the supply chain.

However, in the backdrop of most business transactions being monitored under the GST regime, there has been a significant amplification to the domain of transactions on which GST would be levied. To illustrate, unlike the current regime, where no CST was chargeable on an inter-state stock transfer of goods against a Form F, tax would be leviable on such transactions under the GST era.

While valuation of such goods is relatively easier in cases where the recipient branch/ office is eligible for full input tax credit, there could be multifarious complexities in cases where the recipient location is not engaged in supply of fully taxable goods/ services . Further, while credit of such taxes should typically be available to the recipient branch/ office with generally no additional costs, such payment of taxes on stock transfer would augment tax costs for sectors engaged in exempt/non-taxable supplies and could also entail additional working capital costs where there is no immediate tax payable in the recipient location.

Further, the GST legislation, unlike the current VAT/ CST provisions, prescribes for payment of GST on advances received for goods entailing additional working capital costs for the supplier/ recipient, as recouping of related credits would be available to the recipient location only on actual receipt of goods.

Separately, aligned to the current service tax/ VAT laws, the GST legislation also prescribes provisions for payment of tax under reverse charge mechanism for certain supplies which include supplies received from unregistered suppliers and other specified supplies. Largely for services, the bracket attracting reverse charge under the current vis-à-vis the GST regime for a business entity is almost analogous, with certain services having been obliterated like rent-a-cab and works contract services.

Also, in contrast to the current provisions, where credit in relation to capital goods is available over a span of two years, the GST legislation permits availment of full eligible credit in the first year itself, entailing a positive working capital impact for most businesses. Also, unlike the current CENVAT Credit Rules, the GST legislation links availability of credit to the actual payment of related taxes to the Government treasury.

While the new tax era does come with various pros with industry as a whole prognosticating various efficiencies, the increased compliance aspect is fairly worrisome for the businesses. To illustrate, a multi-location service provider would under GST be required to file atleast 37 returns per year per registration vis-à-vis the current requirement of only two returns in total, where a centralized registration is obtained. Similar manifold increase in the compliances is expected for a supplier of goods as well. Roping in of requirements like raising of self-invoice and payment voucher for reverse charge supplies, way bills for intrastate movement of goods, etc further intensify the compliance woes.

Despite the fact that the new tax era would necessitate gearing up for various changes in the short term, the increased efficiencies and reduced tax costs should benefit the economy as a whole in the long run.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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