The trend has been affecting profitability of firms by up to 8%. Non-compliant vendors who do not file their returns are the single most important factor contributing to the hit in profitability across enterprises. Delayed filing by vendors also contributes to the dip in profitability
NEW DELHI: The biggest risks to business profitability at present are materials and service suppliers not complying with tax obligations, a practice that delays about a tenth of all eligible tax credits of businesses, according to a survey.
The survey carried out by online tax service provider Cleartax covering 1,200 businesses showed that almost a third of companies find the process of input tax credit claims extremely laborious and cumbersome. It points towards the inefficiencies in return filing journey of an enterprise, the survey said.
About 83% of enterprises surveyed have not been able to optimise their tax credit claims correctly, the survey showed. It is a strong indicator of the pain point affecting profitability in a significant way, the survey said.
“The trend has been affecting the profitability of firms by up to 8%. Non-compliant vendors who do not file their returns are the single most important factor contributing to the hit in profitability across enterprises. Delayed filing by vendors also contributes to the dip in profitability," the survey noted. To counter the delays in getting tax credit, three in four enterprises are emphasising proactive vendor management which includes following up with them at least once every month. “Over 80% of large enterprises now intend to hold payments of non-compliant vendors," Cleartax said.
The trend is affecting large enterprises significantly, Cleartax said citing an example of a multinational company losing Rs50 crore due to suboptimal tax credit management. Mid-sized enterprises too faced similar issues. Based on ClearTax analysis, this varies between ₹15-20 crore, the company said.
Input tax credit is allowed to a business only if its supplier deposits the tax collected with the government.
The key finding of the survey is the extent of differences in the impact of tax credit observed across industries. Businesses that work with multiple vendors exhibited a larger impact over the rest. These include textiles, advertising, media, entertainment, and information technology.
Apart from imparting awareness and efficient vendor management, there is a need to make the process of refund of un-utilised input tax credit more seamless, the survey noted, recommending automated refund process.
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