A GoM led by Sushil Modi has decided to recommend to the GST council that a section in the GST Act concerning the reverse charge mechanism (RCM) be scrapped as “it discriminates against unregistered dealers while not adding much to the revenue”.
A group of ministers (GoM) led by Bihar deputy chief minister Sushil Modi on Sunday decided to recommend to the GST council that a section in the GST Act concerning the reverse charge mechanism (RCM) be scrapped as “it discriminates against unregistered dealers while not adding much to the revenue”.
Under the RCM rule, one of the anti-evasion tools envisaged by policymakers, registered dealers are required to make tax payments in case they procure goods from unregistered ones.
This has been resisted by the registered small businesses as they find it cumbersome to comply when goods are purchased from dealers outside the goods and services tax (GST) ambit.
Since the GST’s roll-out in July last year, RCM has remained suspended and has recently been further deferred till September 30.
“We have recommended omitting the present Section 9(4) and introducing a new Section 9(4) which will permit the government, on the recommendations of the GST Council, to notify specific class of registered persons, goods which would be covered under THE RCM provision,” Modi said. He added that scrapping the extant section 9(4) would ensure that the Council doesn’t have to defer the RCM implementation every quarter. The Council can then identify specific commodities for applying RCM instead of a class of traders as is the case now, he said.
Additionally, another ministerial panel led by Sushil Modi has decided to recommend to the GST Council to defer by a year the proposal to incentivise digital payments under GST, citing revenue implications of doling out a concessional tax rate. The revenue impact is seen to be Rs 9,000- 14,000 crore a year.
According to the proposal discussed by the GST Council in its last meeting in May, a concession of 2 percentage points in GST rate (where the tax rate is 3% or more) could be extended to consumers making payment through cheque or digital mode. The discount would be capped at Rs 100 per transaction.
The recommendations would be considered by the GST Council in its next meet on July 21. Both the GoMs comprise five state finance ministers each.
Under the RCM proposal, if a vendor who is not registered under GST, supplies goods to a person who is registered, then the reverse charge would apply: the GST will have to be paid directly by the receiver (registered dealer) instead of the supplier and former has to do self-invoicing for the purchases made.