What is GST Compliance Rating?

Simply put, the GST compliance rating is akin to a performance ranking of all registered taxable persons which tells you how compliant they are with respect to the GST provisions. This will be irrespective of nature, size, or turnover of the business. For example, a rating system can be devised on a scale of 1 to 10, with 10 being the highest compliant and 1 being least compliant. Please note that the actual rating system has still not been notified.

Why is the GST Compliance Rating being introduced?

The idea behind this concept of tax administration is to compel people to be fully GST compliant and on time with uploading invoices and other necessary documents. Under GST, a person can claim input tax credit in GSTR-2 (return with purchase details for the month) only when the seller has also filed his GSTR-1 (return with monthly sales details), and the details on both these forms match or reconcile with each other. Under the current regime, businesses often delayed filing return and payment of taxes to gain time. Continuing this practice under GST will result in a delay in input tax credit across the chain and severely affect the working capital of businesses. The rating system will prevent the delay of credit for bona fide buyers due to the non-compliance of certain persons.

How will someone be rated under GST?

GST Rating will be based on certain criteria which are yet to be prescribed. However, experts believe that the following factors could play a key role in deciding compliance ratings:
Timely payment of taxes
Timely filing of returns
Timely reconciliations
Compliance with various other time limits under GST
Cooperating with the GST authorities

How will the GST Rating work?

Based on your rating, you and your business will enjoy certain benefits. It has been proposed that refunds to a taxpayer will be made on a percentage basis of these ratings. Let us take an example. Supposing a taxpayer has a rating of 8. He is eligible to claim a refund of Rs. 10,000. Based on his compliance rating (which is 8), he will get an instant provisional refund of Rs. 8,000 when he applies for a refund. The balance of Rs. 2,000 will be paid later after scrutiny. Similarly, a person with a rating of 6 will get only 60% of refund. Only a person with a minimum of GST rating of 5 on 10 can avail provisional refund. Note: The rules regarding this are yet to be notified.

How will businesses be benefited by becoming GST compliant?

The easiest way to understand this is through an example. Ajay requires office stationery. He has shortlisted 2 sellers – ABC & XYZ. ABC has a rating of 9 whereas XYZ’s rating is 6. Ajay hears from his good friend Vijay that the company XYZ does not file its GST returns on time resulting in input credit being blocked, while the company ABC is well rated and highly compliant. Based on his friend’s suggestions and the vendor’s ratings, Ajay places an order with the company ABC. Effect on buyer: Buyers will look for sellers with a higher rating which will ensure they can avail input tax credit faster. Effect on sellers: Sellers with a higher rating will attract more customers. Thus, the GST rating will bring in a healthy competition between businesses. A prospective client will inquire about the compliance ratings of suppliers before entering deals.