E-way Bill: Micro-enterprises to feel the heat from stricter GST compliance

As government makes tax enforcement stricter with key compliance measures now covering larger businesses becoming applicable to them over the next few months, it is believed that the micro-enterprises will begin to feel the heat.

As per the government announcement firms with sales below ₹5 crore – defined as micro-enterprises – 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, starting 1st December 2020.

The compliance rule which is applicable to all businesses from December 1st is already being implemented on bigger businesses from 15th October 2020.

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.

However, the revenue loss during the pandemic has forced the authorities to extend the compliance to all businesses even the small businesses, which have so far enjoyed considerable compliance relaxations in the GST transition period.

Furthermore, the government also has plans 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 2021, mandatory for all from April.

Governments move 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.

As per industry experts, tax non-compliance among smaller firms is rampant in certain segments of the industry like auto components.

The extension in 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. It is believed that with the change the month of December will see better tax fillings and revenue collections.

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