Small companies want input credit be de-linked from tax payment

People dealing with small companies have made a pitch for changes in the goods and services tax (GST) legislation to avoid cash-flow problems for this sector even as the GST Council takes up crucial Bills at a two-day meeting beginning Saturday.

The meeting will try to iron out the irritants so that the Bills can be tabled in the Budget session of Parliament after the recess and assemblies.

However, tax experts say the proposed provisions are fair.

Bharat Goenka, managing director of Tally Solutions, says the model GST Bill should change the definition of valid return, which is necessary for companies getting input credit, which firms receive for paying taxes on their inputs in production.

Currently, the model Bill provides for paying input credit if firms have paid taxes. Within a month of selling its goods, the company will have to upload its invoice on the Goods and Services Tax Network (GSTN) and pay taxes by the next month. Goenka wants valid return to be one which has been correctly computed, and defines the liability of the taxpayer and not the one that is linked to the payment of taxes. He says the provision will create problems for small businesses.

“Most (if not all) will have no bad intent of evasion or not paying. Nor will they be taking the government for granted. It is just that they may sometimes need to delay payment due to exigencies,” he said. Tally Solutions is a software product company, primarily dealing with small and medium enterprises. Sometimes companies are forced between choosing whether to pay salaries in time or taxes, according to Goenka, adding that the pressure of paying their suppliers becomes critical.

A related problem is of compliance ratings. The Bill has a provision for such ratings and input credit is dependent on the compliance rating (which is contingent on the payment of taxes) of the supplier of the company concerned. As such, companies would avoid buying from those with a poor rating, according to Goenka. “This is an even more frightening provision because the government intends to make public a compliance rating,” Goenka said.

However, M S Mani of Deloitte Haskins says the current provision is fair and if taxes can be delayed, input credit can also be delayed.

In the past the government paid input credit to companies and did not get tax at times. There were instances of owners of small companies closing down firms and creating new ones to avoid taxes, while getting input credit. This cannot happen in the GST regime, according to him.

One of the issues is an enabling provision in the Bill to allow the Centre and the states to increase the GST rate from the current aggregate 28 per cent to 40 per cent.

The issues to be clarified in the meeting include the constitution of the appeals tribunal under the GST, the definition of agriculture and the exemptions that have to be given during the transition phase, and the delegation of powers.

Two more things are expected in the meeting: A clarification of the treatment of the works contract and the fine print of the composition scheme wherein taxpayers with a revenue threshold of up to ~50 lakh can pay a fixed tax rate and reduce the procedural requirements.

The issues were vetted by the law committee, which includes officials of the Centre and states.

“We are hopeful that the three Bills will be cleared in the meeting so that they can be introduced in Parliament (after the recess). Issues have been sorted out during the law committee’s meetings,” an official said.

Parliament will resume its Budget session from March 9.