Union government has proposed a 2% discount in GST for consumers who make digital payments.
Incorporating a digital GST rate for every digital transaction is going to be a huge challenge.
What is significance of digital GST rate?
The proposal is likely to be taken up in the next GST Council meeting in January.
The incentive will be available to business-to-consumer (B2C) transactions for goods and services that face a GST rate of 3% or more.
The incentive will include a 1% concession on the Central GST and another 1 per cent on the State GST.
The move means that the effective GST rate for items in the 18% slab will come down to 16% for those paying through digital mode.
What are the concerns with the move?
The concession will be limited to Rs.100 per transaction, this implies that goods and services bought up to Rs.5,000 per transaction will enjoy the full 2 percentage point concession of Rs.100.
The cap of Rs.100 per transaction is too less to induce taxpayers accustomed to cash to switch over to digital.
The proposal will not apply to retailers registered under the composition scheme.
Customers will be offered two prices, one with the normal GST and the other with two percentage points lower GST for digital payments.
This would need some alteration in the tax computation process and the return filing templates.
GST is still a new law and revenue collections are oscillating substantially,it is too early to offer such incentives under a tax law.
What are the expected challenges?
Providing a 2% rebate is going to further reduce collections from GST which could impact the coffers of the Centre and the States.
In turn, this would force the Government to tap into the Compensation Cess for monetary comfort.
The taxpayers with turnover of less than Rs.1.5 crore are most likely to conduct some transactions in cash.
The condition not to extend the scheme to taxpayers registered under the composition scheme could actually turn out to be counter-productive.
