Home / News / India /  GST compliance to hit micro firms soon

Micro-enterprises will soon begin to feel the heat of the government’s tax enforcement drive, with key compliance measures now covering larger businesses becoming applicable to them over the next few months.

From December, firms with sales below 5 crore—defined as micro firms—will not be able to generate an electronic permit (e-way bill) for goods transportation if they have defaulted on filing return forms for two consecutive tax periods.

The National Informatics Centre, which runs the portal for generating e-way bills, said it will activate this feature for all firms from 1 December irrespective of their turnover. From 15 October, this compliance rule has been applicable for bigger businesses.

The government had so far limited compliance enforcement measures to larger firms, but the e-way bill restriction shows that after about three and a half years of rolling out the Goods and Service Tax (GST), it is going for a full-fledged enforcement drive. Small businesses, a politically significant segment of the economy, have so far enjoyed considerable compliance relaxations in the GST transition period, but the revenue loss during covid has forced authorities to extend the compliance drive to cover them as well.

Also, there is a plan to make electronic invoicing—the process of real-time validation of business-to-business transaction details at the NIC portal—which is currently applicable to businesses with 500 crore sales, and to those with 100 crore sales from 1 January, mandatory for all from April.

These moves assume significance as tax evasion, especially among small businesses, distorts the industry, making defaulting firms more price-competitive than firms that contribute to the exchequer. Tax non-compliance among smaller firms is rampant in certain segments of the industry like auto components, said an industry executive, who spoke on condition of anonymity.

“The monthly tax return GSTR 3B shows transactions at the aggregate level based on which taxes are paid and hence, two consecutive defaults point to non-compliance. After hand-holding businesses in the transition period, the authorities now expect firms that are liable to pay taxes to file returns on time. In case of technical difficulties, companies are free to approach the Commissioner to get relief," said Abhishek Jain, tax partner, EY.

Extending the restriction on generating e-way bills to all firms irrespective of turnover would force them to file tax returns on time, improving the overall compliance levels, said Rajat Mohan, senior partner at chartered accountant firm AMRG and Associates.

“With this change, the month of December will see better tax fillings and revenue collections would also improve marginally on this account," said Mohan.

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