The Central Board of Indirect Taxes and Customs (CBIC) reportedly wants its field officers to recover Rs 46,000 crore of unpaid interest on delayed goods and services tax (GST) payment.
After GST rollout in July 2017, interest on delayed payment was charged on the gross amount that included any portion paid by using input tax credit. This was flawed. So, the government amended the Central Goods and Services Tax Act in 2019 to charge interest on the net GST liability. Apparently, the CBIC has said that interest must be paid by taxpayers on the total amount of tax liability. This is unfair. The government must levy interest on the net tax liability, retrospectively. And, to boost revenues, it should expand the so-called reverse charge mechanism on all transactions between small companies and companies that are no longer small.
Under reverse charge, when an entity not registered under GST supplies a good or a service to an entity registered under GST, the buyer pays the tax directly to the government, instead of adding it to the payment for the good or service and expecting the small supplier to pay the tax to the government. The buyer then claims an input tax credit on this tax paid when it pays taxes on its sales. There are multiple advantages. One, even the small suppliers are brought within the tax framework and are not discriminated against by buyers who want to take input tax credit and would not buy from suppliers unable to raise invoices and file proper GST returns. Further, the small supplier does not have to borrow money to pay tax on its sales, as often happens when the buyer delays payments to small vendors.
True, it would mean additional paperwork by both the supplier and the buyer. However, it would expand the audit trail and throw up a mine of data to be analysed.