Concept of Compliance Rating under GST

GST compliance rating is one of the vital initiatives taken by the Government, to augment the adoptability and ensure seamless transition from the existing scheme of indirect taxation regime into the GST regime.  Currently, there is no such mechanism for compliance rating under any of the indirect tax laws in India.

Hence, now every person registered under GST irrespective of its nature or size or turnover shall be assigned a GST compliance rating score based on his record of compliance with the provisions of the GST Act.

This scheme has been taken in order to incentivize dealers to fulfill the provisions of the new indirect tax regime on timely basis

In this regards, the parameters on the basis on which rating would be given is yet to be notified by the Government. These parameters could include, inter-alia, aspects such as promptness in discharging taxes, timely submission of returns online, timely reconciliations, observance to various time limits specified in the law, cooperation extended to the tax department etc.

Further, with a view to make sure continued compliance by the dealers, the GST compliance rating score shall be evaluated at periodic intervals, intimated to the concerned dealer and updated in the public domain.

Since the compliance ratings would be placed in public domain, businesses or dealers would be able to take informed decision to deal with the lesser complaint taxable person. A highly rated taxable person would be preferred over others. It would also stimulate efficiency of transactions, timely input tax credit and lesser difficulty in reconciliations. It would also add to organization’s reputation and credibility.More disciplined business would fall under higher rating and there are provisions for black-listing. 

It is predictable that GST compliance rating scores may be used for identifying compliant tax payers which may get better administrative treatment or response, ascertaining risk profile of tax payers, data integrity / audit of tax payers records, selection of cases for audit or scrutiny etc. A taxable person with higher rating may be given certain privileges while a lower rating may tempt superior supervision. This may also inspire healthy competition amongst tax payers for attaining a higher rating leading to improved reputation and as a sign of excellent governance.

A high GST rating serves as assertion to the purchasers that, the input tax credit for the purchases made by them would, more or less, be promptly made available to them, by their suppliers. Purchasing goods from dealers with a low GST rating could possibly damage their ability to claim input tax credit on time, resulting in unnecessary cash outflows by way of monthly output tax payments. Dealers would want to focus more on managing and expanding their businesses rather than pursuing their suppliers for uploading details of the sales made to them, on to the GSTN.

In view of the above, the GST compliance rating mechanism can be apparent as a very effective tool, to instill and implement a sense of discipline amongst the business class, when it comes to compliance with the provisions of the new regime.

Further, a higher GST rating would enable businesses to attract more customers. To explicate, registered dealers would prefer making their purchases from those who have a higher GST compliance rating.

The rating would be made publicly available on the GST Network (GSTN) website as tax authorities aim to build peer pressure among companies to ensure compliance.

The rating system holds significance more so for taxpayers making zero rates supplies will be granted only if compliance rating of supplier is not less than five on a scale of ten.

We have launched Single Platform on GST Compliances In India, assisting in 4 areas – 1) Migration, 2) GST Compliance, 3) Training and 4) Transition & Implementation.  Click this link for any assistance