Small-scale units have proposed to the GST council that the need for keeping the GST chain unbroken can be met without insisting on actual payment of taxes within the prescribed window.
A section of the small businesses fears loss of their long-time buyers and resultant erosion of turnover once the Goods and Services Tax (GST) is implemented. As per a provision endorsed by the GST Council, if a firm fails to pay GST within a stipulated window of 60 days – small businesses often need to delay tax payments to meet exigencies like payment of salaries – the entity that purchases goods/services from it and add value to them will be denied input tax credit (ITC), resulting in higher tax outgo.
While ITC is one of the salient features of the GST, small-scale units have proposed to the council that the need for keeping the GST chain unbroken can be met without insisting on actual payment of taxes within the prescribed window. Alternatively, they said, a “valid return” which correctly computes the tax liability of the supplier could be made the basis for receipt of ITC by the buyer.
However, tax experts with whom FE spoke to said that any dilution in the limited-window for GST payment will defeat the purpose of the new indirect tax regime and make it susceptible to tax evasion.
M S Mani, senior director, indirect tax at Deloitte India, said that the provision is essential to ensure better tax compliance under GST. While Mani admitted that some small businesses would be impacted, he insisted that the system was designed to benefit the honest businesses and weed out the unscrupulous ones.
“In the existing system, small businesses often operate under a particular name and registration for 2-3 years and then shut it down without paying full taxes. The same owners and management open another company under a different name and continue to operate business while avoiding taxes,” he said.
However, Bharat Goenka, managing director of Delhi-based Tally Solutions, said: “Small businesses sometimes need to delay tax payment due to certain exigencies. For example, in a particular quarter, a business may choose to delay tax payment to ensure the workers are given salaries on time, thereby making a conscious choice of paying the tax later with penalties.” Goenka’s firm provides business process management software to small-scale businesses. Additionally, he said, those companies that fail to pay GST on time will earn a poor rating on the compliance front, and this will be in the public domain on the GST portal. This could impact a company’s business as existing and future buyers would want to stay away from the defaulter.
Small companies have made various representations through industry fora like FICCI, CII and CAIT for dilution of the 60-day deadline for GST payment but the government has stayed firm on its stand thus far.
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“The issue was brought up before the GST council in September last year but it was summarily rejected as any tinkering with the provision would take away the essence of GST,” a source who attended the GST council meeting told FE. He added that the GST provision of input tax credit makes the buyer company virtually a government agent in charge of ensuring payment of taxes by its supplier, which incentivises compliance and help broaden the tax base.