GST Compliance Rating [ Section 149 of CGST Act,2017]

(a)        As per section 149 of the CGST Act, 2017 which is applicable mutatis mutandis under IGST, UTGST Act, 2017 and SGST laws, every registered person shall be assigned a compliance rating based on the record of compliance in respect of specified parameters. Such ratings shall also be placed in the public domain. A prospective client will be able to see the compliance ratings of suppliers and take a decision as to whether to deal with a particular supplier or not.

(b)       The Compliance Rating of the Taxpayer shall be calculated at a scale of 1-10 points based on his performances in different area of compliance requirement like delayed filing of return, percentage of inaccuracy in data provided by the taxpayers, tax evasion, suppression of facts, number of cases where penal provisions have been initiated, filing of erroneous refund and many such other parameters.

(c)        The compliance rating mechanism shall recognize the non-compliance behaviours of the taxpayers based on their scale of business (small, medium or large) and possibility of non-compliance due to their socio-economic status and psychological impressions. This system shall also identify the area of compliance requirements, which might be requiring changes with a view to provide ease in complying it.

(d)       The standard compliance management model has the structured framework to develop the compliance rating process. It has following essential components:

(a)        Identifying area of non-compliances,

(b)       Assigning priorities based on severity/impact

(c)        Identifying the non-compliance-behaviour of taxpayers

(d)       Responses of department against such non-compliances, and

(e)        Evaluating the impact of the measures taken.

(e)       Assessing and prioritizing the risk area for compliance rating:

To implement Compliance rating, it must be essential to identify the risk areas and be assessed and prioritized in a structured manner so as to ensure that the revenue department’s scarce resources are applied in the most effective way to improve voluntary compliance. This can be done using a risk rating matrix as specified by the Organization for Economic Co-operation and Development (OECD).

Matrix of Risk Rating

Consequence /
Likelihood

Insignificant

Minor

Moderate

Major

Significant

Remote

Negligible

Negligible

Low

Low

Significant

Unlikely

Negligible

Low

Law

Significant

High

Possibly

Negligible

Low

Significant

High

High

Likely

Low

Significant

High

High

Extreme

Almost certain

Low

Significant

High

Extreme

Extreme

(f)        The matrix has two axis (1) Consequences of Non-Compliance and (2) Likelihood of non-compliance. The Consequences of non-Compliance may be reflected under following sub-headings:

i.          Insignificant

ii          Minor

iii         Moderate

iv.        Major

v.         Significant

(g)       The Likelihood of non-compliance may be specified under following sub-headings:

i.          Remote

ii.         Unlikely

iii.        Possibly

iv.        Likely and

v.         Almost Certain

(h)       Using these parameters of non-compliances, we may ascertain the non-compliance Risk Rating matrix of taxpayers in different category like:

i.          Negligible (Rating: 8.1-10) - Where consequences of non-compliance are insignificant and likelihood of non-compliance is also remote like inadvertent spelling mistake or the mistakes which have no impact upon the GST compliance requirement etc.

ii         Low (Rating: 6.1-8) - Where Consequences are Minor and Likelihood of non-compliance is also improbable. Although such category of non-compliances have no impact upon revenue or significant compliance requirement, but it may show the reluctance of the taxpayer and therefore, such behaviour may be taken into consideration while facilitating taxpayers for different business processes.

iii.       Significant (Rating: 4.1-6) - Where Consequences are Moderate and Likelihood of non-compliance is possible, the non-compliance behaviour of taxpayer shall have certain impact upon grading, facilitations and scrutiny etc.

iv.        High (Rating: 2.1-4) - Where Consequences are Major and Likelihood of non-compliance is Probable, the non-compliance behaviour of the taxpayer is almost ascertained. In such cases, preventive and corrective action are required to be taken, in addition to debarring the taxpayer from facilitation schemes.

v.         Extreme (Rating: 0-2) - Where Consequences are Significant and Likelihood of non-compliance is certain, the non-compliance behaviour of the taxpayer need preventive action immediately. He should be debarred of any facilitation. Such stage may be defined with repeated other parameters also like repeated non-compliance under category (ffl) or (iv) above, or having saviour consequences upon compliance requirement under GST.

 
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