Whalesbook
The 180-Day ITC Hurdle
Section 16 of the GST Act, which mandates the reversal of Input Tax Credit (ITC) if payment to a supplier is not made within 180 days, is a primary source of contention. This provision is seen by many as an intrusion into commercial decisions, leading to disputes over quality, performance, or other payment-related issues. Businesses argue that the government's GST collection is not impacted by such delays, making the forced reversal of ITC an unnecessary burden.
Blocked Credits Hamper Operations
Further complicating matters, Section 17 of the GST Act disallows credits for certain business expenses, including vehicles, food and beverages, health services, and club memberships. These are often essential for running a business or are provided as employee remuneration. The blockage of ITC on such items leads to significant sums being tied up in litigation as tax officers disallow even common expenses like employee telephone bills.
CSR Spending and Tax Implications
Corporate Social Responsibility (CSR) spending, mandated under the Companies Act, also faces disallowed ITC. Experts argue that since these activities, such as education or environmental initiatives, often complement government efforts, allowing ITC and tax deductions would encourage greater corporate participation. Policy guardrails could ensure genuine commitment, preventing misuse for tax benefits alone.
Appeal Deposits Strain SMEs
Section 79 of the GST Act requires a 10% pre-deposit for appeals filed with adjudicating authorities. This poses a significant challenge for Small and Medium Enterprises (SMEs), potentially depleting their working capital. Given that initial GST assessments often involve interpretation disputes, flexibility in pre-deposit requirements based on financial strength is suggested to ease this burden and reduce litigation.
These micro-level issues are critical tests for the government's commitment to improving the ease of doing business in India.