The government is currently developing a supplier database that will assess suppliers based on their history of complying with the goods and services tax (GST), their credit history, transaction records, and past instances of non-compliance. This plan could be included in the upcoming budget proposal and put into action during the following year.
Companies will have the flexibility to decide which suppliers are adhering to GST regulations and which are not. This will enable them to assess the potential risks associated with engaging in business with these suppliers.
This initiative aims to enhance compliance among smaller suppliers and prevent the blocking of GST input tax credits (ITC) for larger businesses due to supplier defaults.
The official stated that we will commence the supplier rating process by November and aim to officially incorporate it into the budget. Our intention is to put this system into practice starting from the next fiscal year.
The rating system will take into account seven key criteria. The Central Board of Indirect Taxes & Customs (CBIC) is currently fine-tuning the details, which will be finalized following consultations with industry stakeholders.
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Currently, businesses cannot claim input tax credits if their suppliers fail to file returns or upload invoices on time, which ties up their capital. The industry had urged the CBIC to initiate the rating process, believing it would assist companies in selecting GST-compliant suppliers.
This effort began earlier in the year, but data synchronization was not yet complete at that time. However, with mandatory GST e-invoicing for small businesses, ongoing geo-coding, and Aadhaar authentication, the CBIC will shortly possess fully updated supplier data, forming the foundation for the rating system.
“We will have all the pertinent data prepared by the end of October,” affirmed the official. Our plan is to initiate the analysis and rating process either at the end of November or in the first week of December.
The official further added that the existing GST law already includes provisions for compliance rating, and therefore, no changes to the law will be necessary.
The industry had previously advocated for a GST compliance rating system for vendors and had urged the CBIC to implement it in this year’s budget. However, the delay was attributed to incomplete data synchronization.
A tax expert highlighted that the rating mechanism would empower businesses to collaborate with vendors who demonstrate higher levels of compliance.
