Abolition of GST annual audit could save firms up to ₹30k cr

The government’s decision to do away with mandatory goods and services tax (GST) annual audit requirements will help at least 10 million firms save audit fee worth about ₹30,000 crore annually, besides reducing the compliance burden, two officials with direct knowledge of the matter said on condition of anonymity. However, accountants are against the move.

“The Finance Bill, 2021, will amend the law, which will be notified soon after. The basic purpose of this move is to expand the GST base by reducing compliance burden and help businesses, particularly small firms, save by not paying audit fees to professionals,” one of the two officials said.

But Nihar N. Jambusaria, president of the Institute of Chartered Accountants of India (ICAI), begged to differ. “We are of the view that provisions relating to GST audit and certification of reconciliation statement by a chartered accountant (CA) should be retained in the GST law. Audit is not an avoidable compliance; it is a preventive necessity,” he said.

Budget 2021-22 proposed to remove the mandatory requirement of getting annual accounts audited and the reconciliation statement submitted by specified professionals, such as CAs under the GST regime, the people cited above said. A decision to this effect was already taken by the GST Council, the apex decision-making body for all things related to GST, in March 2020, but it could not be implemented due to covid-19 and the subsequent lockdown, the second official said.

Experts said self-certification would eliminate the requirement of certification from professionals, ease annual compliance and save costs. Businesses would, however, be required to ensure that the turnover declared in the GST returns reconcile with the audited financial statements, they added.

“Currently, the review is done by an independent professional who highlights the mismatches to the taxpayer. In case where taxes are not paid on account of such mismatches, the report is qualified by the professional. The existing process enables the timely identification of gaps. The self-certification process may not identify such mismatches on a timely basis,” said Sunil Kumar, the deputy general manager at tax research and advisory firm Taxmann.

He cautioned that the identification of such gaps by the authorities at a later stage would involve penalties and interest in addition to the tax payable.

The first official mentioned above said the ICAI has made a representation to the government against the budget proposal.

Jambusaria said the GST regime has been evolving at a fast pace and taxpayers need professional guidance and handholding. “Revenue is recognized differently in accounting and GST law... For this reason, it is essential that the reconciliation statement be certified by a CA who is proficient in both accounting aspects and GST law.”

“GST audit by a CA ensures the maker-checker concept, thereby detecting inconsistencies, lapses, errors and ambiguities, if any, in complying with the provisions of the GST law. Thus, audit ensures compliance,” he added.

Jambusaria dismissed the central government’s argument that self-certification would be a major saving for businesses.

“As on 12 February 2020, 12.42 lakh taxpayers were required to submit GSTR-9C (the annual GST return). Audit should not be seen as a cost to the taxpayer, rather it is an investment for him, the benefits of which are reaped over a period of time,” he added.