Covid-19 relief: GST Council eases compliance for small businesses

Compensation cess issue to be discussed in July meeting, Correction of inverted duty structure for textiles deferred

The Goods and Services Tax (GST) Council on Friday, in its first meeting after the lockdown was imposed, eased the compliance burden for small businesses by slashing late fees and halving the interest rate on them.

While GST rates were not discussed in the four-hour meeting via videoconferencing, correcting the inverted duty structure in the case of textiles was deliberated but a decision on it was held over. The issue of compensation to the states for their GST shortfall will be discussed in a meeting next month and in it market borrowing will be explored as an option.

In order to clean up pendency in return filing, the council decided to waive late fees for not furnishing GSTR 3B or summary returns in the case of nil liability, whereas in cases of tax liability, late fee has been capped at Rs 500 per return for the period between July 2017 and January 2020.  

The reduced rate will apply to all GSTR 3B returns filed between July 1 and September 30.

The Council also halved the interest rate to 9 per cent for late filing by businesses with a turnover of up to Rs 5 crore during February, March, and April, and this will be applicable till September 30. For May, June, and July, it decided to waive late fees and interest if GSTR 3B return is filed by September 30. M S Mani, partner, Deloitte India said, “… providing compliance relief, even beyond September if required, to all businesses is essential at the present stage where the primary focus has to be on business revival and working capital management”.

In order to facilitate taxpayers who could not get their cancelled GST registrations restored in time, a window till September 30 will be provided to apply for revoking registrations cancelled till June 12, 2020.

Compensation cess

The council decided to hold in July a single-agenda meeting pertaining to compensation cess to the states. “We will discuss if the compensation cess framework will require borrowing, and if that is the case, who is going to pay for it,” said FM Nirmala Sitharaman.

Kerala FM Thomas Isaac said in a tweet the only solution to the ballooning requirement for GST compensation and shrinkage in cess collection was borrowing by the GST Council while extending the cess period by a year or two.

The government has managed to garner just about Rs 95,000 crore as GST collection in April and May together, which is less than half the mop-up in the corresponding months last year.

Legal issues related to borrowing include who will give the guarantee, how it will be repaid, how interest is to be paid, and the impact on the Fiscal Responsibility and Budget Management Act. The Centre could collect just Rs 990 crore as compensation cess in April 2020-21, almost one-ninth of the Rs 8,874 a year ago, according to the figures released by the Controller General of Accounts. Compensation for March, April, and May has also become due.

Sitharaman said the compensation of Rs 36,400 crore, paid to the states for December, January, and February, was cleared using undistributed Integrated GST (IGST). Before the introduction of the formula-based sharing of IGST between the Centre and states, there was a huge accumulation of the tax from 2017-18, which led to an ad hoc decision of sharing accumulated IGST in two halves. This anomaly had to be corrected. “Understanding the need of states to have money in their hands, we corrected one end of the anomaly, wherein the Centre could release money and give to the states without states having to do any adjustment,” said Sitharaman. The matter will be taken up by the group of ministers led by Bihar Deputy CM Sushil Kumar Modi.

Inverted duty structure

The council also discussed correcting the inversion in duty in textiles, but a decision was deferred. “While every minister agreed with the logic that the anomaly existed and the inversion was causing unexpected amounts going as refunds, the question of the right time to make the correction remained, and hence this decision has been postponed,” said Sitharaman.

The council, to correct the inverted duty structure, had in March announced a hike in the tax rate on mobile phones and specified parts to 18 per cent from 12 per cent. A decision to correct the inversion for footwear, textiles, and fertiliser was deferred as recommended by the fitment panel. An inverted duty structure arises when the rate on inputs is higher than that of final products.