Small businesses should not be taxed twice under GST

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The Goods and Services Tax (GST) was introduced with effect from 1st July 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 cheat the government of 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 hide. Such technology must be put to good use and prevent harassment of small and medium businesses from an easy and simple way of claiming what is rightfully theirs.

Let us understand the impact of this provision.

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.

Sign and share this petition with everyone you know. If all of us get together and speak up, we can get the Chairman of GST Council Mr. Arun Jaitley to accede to our request.

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