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So much have been written about GST procedures, returns and the impact on various industries. However, one topic that has not been covered so far and is missing the limelight is the GST compliance rating.

According to the model GST law, refund claims under the GST regime will also be processed on merit basis, i.e on the GST compliance rating of the registered taxpayer. It is expected that certain slabs rates will be maintained for various taxpayers falling under various bandwidths of compliance rating and the refunds will be made in terms of percentage amount based on the individual rating of the taxpayer.

Let’s take an example to understand this further. Let’s assume that GST rating will be done on a scale of 1-10, wherein someone rated at 1 is least compliant and a rating of 10 depicts excellent compliance. Now it has been proposed that refunds to a taxpayer will be made in percentage on the basis of these ratings. For example, someone maintaining a rating of 10 will receive 100% of the refund immediately. But another entity having a rating of 8 might get only 80% of his refund claim.

This can have a huge impact on small and medium taxpayers who will either have to spend more to deploy a dedicated resource to ensure timely GST compliance or their working capital will remain stuck with tax authorities as pending refund claims. In both scenarios, these taxpayers will have to bear extra costs that will put a burden on their profitability.

Another dimension to look into GST compliance rating is from the perspective of a buyer. As per the GST law, input credit will only be available when a supplier declares the particulars which in turn are validated by the buyer electronically. Now, if a supplier fails to furnish GSTR-1, return for declaring details of outward taxable supplies, a buyer will not get the credit of such goods. Thus GST compliance rating becomes more relevant for buyers who want to claim their input credit in a timely manner. Such buyers will always try to purchase from a supplier whose compliance rating is excellent.

Though we are at a very early stage to determine the actual impact of GST compliance rating and how it is going to affect the normal course of carrying out a business, it is always suggested to be ready for the expected changes and embrace them when they come.

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