GST Rating and Interest Costs
Non Compliance with GST regulations could lead to increase in your Borrowing Cost (Rate of Interest)
First of All, to understand how Non Compliance with GST (Goods & Service Tax) rules and regulations can lead to increase in borrowing cost for any entity, we have to understand few basic concepts of GST, GST Compliance Rating, External Credit rating and Bank Credit Analysis.
As we have already moved on to GST regime w.e.f. July 01, 2017, one of the most important differentiating factor in GST is high reliance on Technology apart from benefits like removal of cascading effect, ease of doing inter-state sales etc.
Under GST, all communications with Department/Government would be through GST online portal like registrations, filing of returns, tax payments, notices etc which would provide department with adequate data, which eventually would be used for providing GST Compliance Rating.
Now what is GST Compliance Rating Concept?
As per Section 149 of the CGST Act, 2017 (covered under other acts as well), every registered taxable person shall be assigned a compliance rating score by Government on the basis of compliance of specific parameters. Parameters include regular payment of taxes, timely filing of returns, transparent reconciliations, matching of transactions, cooperation with GST department and several others. Compliance rating will be updated at periodic intervals and would be placed on public domain.
Taxable persons with higher rating may be given certain privileges (like early refunds etc) while those having a lower rating may invite enhanced surveillance. The chances for scrutiny assessment will rise and dealers with low compliance rating or rating lower than prescribed level will be black listed. Further, Government may take a view on considering GST compliance rating for participation in tenders. Hence a Good Compliance rating can help businesses to garner new business and increase reputation.
How GST Compliance Rating affect your External Credit Rating ultimately leading to rise in interest cost-:
External Credit Rating:
Credit rating is an opinion expressed by an independent professional organisation, after making a detailed study of all relevant factors like Business Model, Management, Policies & Systems, Industry, Profitability, Liquidity, Debt Matrices, Size of Business and several others. Such an opinion will be of great assistance to investors in making investment decisions.
While assigning credit rating a considerable %age of weightage is given to business compliances and systems, if GST compliance ratings are available in public domains for all entities, entity external rating could be hampered as rating agencies would assign lower score on those entities with lower compliance rating as compared to others. This could ultimately trigger downgrade of an entity’s credit rating and bankers considering this downgrade may increase entity’s rate of interest.
In Short, GST Compliance Rating has widespread effects, So all entities should take these compliances very seriously as apart from financial cost (Interest on delayed Compliances), it could even increase your interest cost as well as hamper your existing/new business.