GST and Cash less economy

Why in news?

Union government is now proposing to offer a 2% point GST rebate for consumers who make digital payments instead of cash.

What does this move signifies?

• GST Council has taken several decisions that are expected the taxation simpler.
• The recent move means that the effective tax rate for items the 18 per cent GST slab will come down to 16 per cent for those paying through the digital mode.
• The recent proposal of rebate is expected to be taken up in January when the GST Council meets next.
• The reason for the proposed incentive is to encourage Indians to move towards a cashless economy.
• By this GST council have taken steps to sort out the problems in the technological architecture and filing of returns. In that sense, the GST is a work in progress.

What are the issues with this new plan?

• Regardless of the noble intentions, this proposed intervention is likely to create another round of confusion for all concerned.
• The tricky part here, implementing this will result in customers being offered two prices one with the normal GST rate and the other with a 2% lower rate.
• The move will require altering both the tax computation process as well as return-filing templates.
• This will only complicate the ground-level implementation of the GST as sellers will need to segregate digital and cash transactions from the beginning.
• What further complicates matters is that this concession will be limited to Rs100 per transaction and will not apply to retailers who have registered in the composition scheme, wherein they only face a single tax rate instead of the normal GST structure.

Way forward

• The government has repeatedly assured taxpayers that it is trying to make the GST a good and simple tax in the true sense of the term.
• There is a genuine intention to move towards a two-rate structure possibly 12% and 18%.
• India obviously needs to move towards a less-cash regime, but the introduction of incentives that complicate things further is avoidable.

Source: Business Standard

Quick fact

Composition Scheme of GST

• Large organizations have the requisite resources and expertise to address GST requirements.
• On the flip side, many start-ups and Small and Medium Enterprises (SMEs) may struggle to comply with these provisions.
• To resolve such scenarios, the government has introduced Composition Scheme under GST, which is merely an extension of the scheme under VAT law.
• When opting for the Composition Scheme under GST, a taxpayer will be required to file summarized returns on a quarterly basis, instead of three monthly returns (as applicable for normal businesses).
• Businesses dealing only in goods can only opt for composition scheme.
• Services providers have been kept outside the scope of this scheme. However, restaurant sector taxpayers may also opt for the scheme.