New Delhi: More than 90% of the registered businesses in states such as Gujarat, Rajasthan, Punjab, Uttar Pradesh and Himachal Pradesh have filed monthly tax returns, according to official data. 

This has helped these states emerge on top of the list of states with the highest GST compliance, while some north-eastern states have lagged behind in GST compliance. 

Gujarat has topped the list of states in ensuring GST return filing compliance, with 95% of those required to file monthly tax returns through Form 3B, meeting the requirement, according to data—available on GSTN, the company that processes the tax returns—for the current fiscal up to the end of May.

Form 3B is a summary of all the monthly transactions done by a business or individual service provider. 

GSTN data also showed that the hill state of Himachal Pradesh and large states such as Tamil Nadu, Uttar Pradesh, Punjab, Haryana, Delhi, Rajasthan and West Bengal have also reported more than 90% compliance in monthly tax returns filing. 

Meanwhile, among union territories, Jammu and Kashmir and Chandigarh have also reported more than 90% return filing compliance.

Separately, north-eastern states like Arunachal Pradesh and Manipur have reported 74% and nearly 77% tax filing compliance, respectively, while the Andaman and Nicobar Islands have reported nearly 80% compliance, among those lagging behind. 

Further, nearly 8-18% of the taxpayers in all the states and union territories had filed the returns after the due date.

Counting on tax

Compliance in tax returns filing assumes significance as it signals efficiency in the tax collection ecosystem, which has a bearing on the overall tax collected. 

Further, successive Finance Commissions have taken into account a states’ own tax and fiscal efforts while deciding on the formula for transferring the central government's divisible pool of tax revenue with the states. 

This is done to reward states’ own tax performance and efficiency while allocating central resources to states. 

Moreover, experts said that ensuring compliance and widening the tax base are priorities for the central and state GST authorities. They added that improving compliance in states and regions like Arunachal Pradesh, Manipur and the Andaman and Nicobar Islands requires a multi-faceted approach.

A carrot and stick policy

“Offering incentives for early filing can motivate businesses to comply on time. These incentives could include discounts on penalties for early filers or rebates on subsequent filings,” said Rajat Mohan, executive director at accounting and advisory firm Moore Singhi. 

“Besides, implementing stricter penalties for late or non-filing of returns can serve as a deterrent for businesses that delay their filings,” he added.

The penalties should be substantial enough to encourage timely compliance but also fair and just, Mohan said. 

He also suggested regular audits and inspections to ensure compliance and identifying habitual defaulters, while adding that these measures should be communicated clearly to all businesses to emphasize the seriousness of timely filings. 

Mohan further highlighted the need to enhance digital literacy, connectivity and infrastructure in remote areas to facilitate easier online filing in remote states.

There are 14.6 million registered GST taxpayers, some of which have signed up for quarterly return filing meant for small businesses.  

However, not all small businesses have registered for GST. 

There are more than 60 million un-incorporated, non-agriculture micro, small and medium enterprises in the country, representing a large informal sector, according to official estimates.