Marginal dip in compliance this September

The goods and services tax (GST) revenue figures, released by the finance ministry a few days ago, showed that the number of GSTR 3B returns filed as of September 25 had dipped to 3.76 million, down from 3.83 million on August 29.

In the same period, the indirect tax payer base (those registered) is reported to have increased from 5.96 million to 6.82 million. This drop in compliance levels from 64.4 per cent to 55.2 per cent led to concerns about the new indirect tax architecture.

But have compliance levels really gone down that sharply? Is the situation as bad as is being made out to be?

Data from the GSTN reveal the actual number of filings as of September 25 was 3.82 million and not the 3.76 million reported earlier. This discrepancy between the GSTN’s number and the one released by the finance ministry is because the latter took data on returns filed only till 6 pm on September 25, say senior GSTN officials. Data till midnight on September 25 showed a higher number — 3.82 million. As of September 27, the number of 3B returns filed had risen to 4.08 million up, from 3.63 million over the same period in the previous month.

This means compliance levels in September have not gone down as sharply as believed earlier. The decline in percentage term is marginal — from 60.9 per cent to 59.9 per cent. There are several possible explanations to account for this and the general low level of compliance rates that one observes in both months.

“In the first month, a lot of assessees automatically got migrated into the GST system. But some of them, such as publishers and lawyers, are not required to comply. They are either exempt or covered under reverse charge. So it’s possible the decline we are seeing is because of them leaving the system. Besides, traders and MSMEs (micro, small and medium enterprises ) may find some difficulty in compliance and may have given up temporarily,” said Abhishek Rastogi, partner at Khaitan and company. GST suvidha providers Business Standard spoke to concur. “Since the introduction of the GST regime, numerous initiatives have been driven by the government for educating the SMEs. Yet, there is a long mile to go for keeping them informed, starting from basic matters that are needed to be taken care of like the manner of recording of sales and purchase invoices,” said Shailesh Agrawal of GSTSTAR. “We also see some initial technical hiccups in the GSTN portal owing to large volumes of transactions and the non-availability of the GST systems, which are giving businesses a tough time in complying with the regulations.”

“This was expected as it is a fairly new system, it will take some time for people to get used to it. But with time, it will get solved and the government is also being very empathetic about the whole situation and has already extended filing deadlines for the convenience of taxpayers,” said Saket Aggarwal, global CEO, Spice Digital. There are other plausible explanations as well. “It is possible that in some cases, there were genuine errors in filing returns. There could have been system-level issues,” said an indirect tax expert at a consulting firm. “It is equally likely that some assessees were expecting the date to be extended.”

Experts that Business Standard spoke to expected the system to stabilise in the coming months. “I think compliance rates would increase as the system stabilises,” Rastogi said.

One possible indication is that this time a larger proportion of returns were filed quickly. By September 20, 2.84 million (41.7 per cent) had already filed their returns compared to 1.18 (19.9 per cent) in the previous month. By September 23, more than half had filed their returns compared to a third in the previous month.