Skip to main content

Govt likely to go slow on key anti-evasion measure under GST

Govt likely to go slow on key anti-evasion measure under GST
The implementation of the reverse charge mechanism is likely to be disruptive for small traders, a key electoral constituency of the ruling BJP, said two people familiar with the development
The government is unlikely to insist on implementing the reverse charge mechanism, a key anti-evasion measure proposed under the goods and services tax (GST), on concerns that the rule will adversely impact small businesses while not yielding revenue gains. The implementation of the reverse charge mechanism is likely to be disruptive for small traders, a key electoral constituency of the ruling Bharatiya Janata Party, said two people familiar with the development. Instead, they said, alternative ways to curb tax evasion are being explored.
Under the reverse charge mechanism, entities (registered under GST) that purchase goods from small unregistered dealers have to pay a tax on behalf of the latter. This is expected to add to the compliance burden of all involved and discourage purchases from unregistered dealers. The Narendra Modi government, in the final year of its tenure before elections are held by May, is trying to avoid further upsetting small traders, who have already been affected by the initial chaos following the implementation of GST last year.
The government is of the view that this anti-tax evasion measure will disrupt small businesses, especially those operating in the informal economy, without leading to a significant rise in revenue collections. To be sure, a final decision on the fate of the reverse charge mechanism will be taken by the GST Council, the federal indirect tax body. “We have to see till what extent it will help us in checking the tax evasion vis-à-vis revenue that it brings. Reverse charge mechanism may not detect too much tax evasion. It will make only a minor difference. As against that, the hassle that it will create for small people is far more,” said a senior government official who did not want to be identified.
According to government estimates, around 1% of the 11.2 million taxpayers under GST pay around 80% of the taxes. “By harassing more than 9 million dealers, if we are going to get only a small revenue increase, then it is not worth it,” the official added. The implementation of the reverse charge mechanism has already been deferred several times in the past year with the latest notification postponing its implementation till 30 September. The official pointed out that even when there is no reverse charge mechanism, the compliance level under the composition scheme for small dealers is very low. Under the composition scheme in GST, small traders can pay a 1% tax without having to file detailed returns.
“Around 1.8 million dealers who are in the composition scheme are showing an average turnover of only Rs.15 lakh. Showing the turnover is in their hands. What is the guarantee that after implementation of the reverse charge mechanism also, they will necessarily report that I have bought from an unregistered dealer and pay the tax? It is very little,” the official said, adding that the government is exploring alternative ways to check tax evasion. “It is a sensible choice. Organized business will opt to not buy from the unregistered dealers rather than paying tax on behalf of these small suppliers. It will lead to a death of the small businesses. Also, you can’t expect small businesses to register under GST and then follow the compliance requirement,” said R. Muralidharan, senior director, Deloitte India.
The Mint, 03rd July 2018, New Delhi

Comments

Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …