The Goods and Services Tax (GST) was introduced with effect from July 1, 2017. GST
replaces different taxes and also aims at simplifying indirect taxation. The GST Council
has been working continuously for making many improvements for better implementation. While the efforts of the GST Council are laudable, there is one important and vexatious problem that needs to be addressed to ensure GST roll out is smooth for all taxpayers, more so for those in the SME sector.
One of the most important provisions in the GST law is that input credit is available to the buyer only if the GST has been remitted by the seller to the Government. This way, the Government is completely shielded from anyone who collects tax, but fails to remit it.
It is true that there is a small minority of tax payers who may keep the government away from its rightful revenue. But to handle problems caused by a small number of such dishonest persons the Government is putting a huge burden on the entire taxpaying community. Just imagine a situation where a person goes to a Police Station to report theft in his house and the police tell him to fetch the culprit and sort out the matter mutually or accept the loss.
Today, there are many safeguards in the system, like Aadhaar, etc, which make it difficult for someone to evade taxes. Such technology must be put to good and provide small and medium businesses an easy and simple way of claiming what is rightfully theirs.
The impact of this provision is as follows [ ITC ]
1) Several market behaviours will emerge. Some will refuse to pay the supplier until the 30th of the following month, leading to abnormal increase in working capital needs. Some will refuse to pay the tax portion, leading to multi-step transactions and increase in both working capital needs as well as cost of doing business. Some will be asked for bank guarantees to cover the possible risks and in all cases most SMEs will have no simple way to respond to such a demand.
2) If the credit cannot be assured on receipt of a valid GST invoice, there is no motivation to either upload the invoices, or accept them – since the credit is, anyway, given only if the payment cycle is completed. This has the danger of slowing down business, making it difficult to find new buyers, and even to retain existing buyers. It has the huge risk of increasing motivation of keeping more transactions outside the GST net, since it will be ‘simpler’ to do those transactions, and ‘more complex’ to do transactions under GST (as such transactions will have the long cycle of awaiting closure till payment cycles of tax are completed by the supplier).
3) Small businesses may actually end up paying GST twice. First to the seller and then once again to the government if the seller has not remitted GST he has collected.
Let us raise our voices and request the GST council to remove this condition and the buyer gets input GST credit based on the invoice uploaded in the GST portal by the seller and accepted by the buyer.
(Tejas Goenka is Executive Director – Tally Solutions.)