GST can do a lot without troubling taxpayers

There is a saying in Hindi which, roughly translated, means hit the snake with a stick in such a way that the ‘snake dies but the stick does not break’. A similar situation is being faced by the administrators of indirect taxation in the country: how to raise revenues without making things more difficult for the tax payers.

The government puts the average monthly GST collections in the last financial year at ₹89,885 crore, way below the informal target of ₹1 lakh crore.

The two proposals of the ‘Committee on Invoice’ — giving ‘distinct invoice number’ (DIN) to every invoice generated by suppliers of goods and services, and encouraging end-consumers to validate tax payments in the last (B2C) transactions — are likely to kill the snake while keeping the stick intact.

The Committee was set up in January with two Terms of Reference: a) to examine the feasibility of generating unique invoice numbers from GSTN portal for all taxpayers; and b) to suggest an incentive scheme to encourage taxpayers to upload their tax paid invoices online. The 9-member committee has Prakash Kumar, CEO, GSTN, as its Chairman.

A draft ‘Concept Paper on Invoice’, produced by the committee, recognises at the outset that the existing system is not adequate. Taxpayers file their returns using the GSTR-3B form (an interim measure that replaced an earlier burdensome system of filing multiple returns.) The system would match invoices mentioned in returns filed by sellers and those filed by the buyers. Forty per cent of the invoices do not match. “Does it indicate 40 per cent evasion? No. It only indicates that the computer is not able to match one invoice to another because each line of the invoice has to be re-entered into the computer as part of the return,” says the concept paper.

Enter DIN

The committee has suggested that each invoice be given a ‘distinct invoice number’, or DIN. Assume the flow of value as follows: raw material suppliers to component manufacturers to product manufacturers to dealers to stockists to retail shops to consumers. When each seller raises an invoice, he affixes a DIN to it, which will be quoted by his buyer to claim tax credit. When the buyer adds value and sells it onwards, he becomes the seller, obtains another DIN for his own invoice. Since all the invoices are uploaded, all the information is available in the GST system; there is no need for any return, or for that matter, an e-Way bill.

While this is the concept, the committee has also addressed the nitty-gritties.

A seller shall download DINs from the GST server. He may obtain serially-numbered DINs in bulk, on the first of each month, and shall use them serially. Mandating serial usage helps in control. For instance, if a businessman obtains 1,000 DINs on the first of September and has used DIN 578th, he cannot deny having used the previous 577.

The GST system can give 16-digit numbers, but will give only 10 — the other six is for the user for his internal controls. For instance, he may use the six digits for identifying different products, different sales regions or shops.

The unused DINs will be ‘surrendered’ to the GST system on the 15th of the following month, failing which he will not be allowed to download the numbers on the 1st of the month after. The scheme accommodates cancellation of a used DIN, in case the transaction is not completed —if, for instance, the goods are found faulty and returned. Further, credit and debit notes (cash flow documents) shall quote the DIN of the original invoice, so reconciliation with the original transaction is possible.

The idea of DIN is said to have come from S Kannan, a Commissioner of GST & Central Excise, and a member of the Committee on Invoice. “The ‘returns’ is a sort of MIS prepared by the taxpayer for the tax authorities, which he need not, if all the invoices are available with the department,” Kannan told BusinessLine .

Many experts that this newspaper spoke to, including K Vaitheeswaran, advocate and tax consultant, said the DIN system was a welcome improvement but were not sure if filing of returns could be done away with. Reacting to such a view, Kannan said, the proposed system “is too simple for people to believe it is true.”