Group of Ministers (GoM), along with a panel of government officials, will meet on Sunday to firm up their view on the possibility of bringing back the liability to pay tax on reverse charge, as well as on the issue of tax discount on digital payments under Goods and Services Tax (GST).
Both the groups will submit their report to the GST Council that is expected meet on July 21 in New Delhi. Bihar Deputy Finance Minister Sushil Modi, Punjab FM Manpreet Singh Badal, Kerala FM Thomas Issac, Excise and Taxation Minister of Haryana, Capt. Abhimanyu, West Bengal FM Amit Mitra, among others, are expected to be present at the meeting.
Earlier this year, some states had insisted that RCM should be re-introduced, as it will help tax authorities plug revenue leakages. Thereafter, a GoM headed by Modi was formed to decide on the exact shape and form of RCM if the government decides to implement it.
The panel is also open to tweaking some of the rules, a senior government official said. “For instance, RCM can be levied only on a particular category of taxpayer. Or there could be some kind of monetary exemption for which tax (on reverse charge basis) may not have to be paid,” the official said.
Reverse charge is a mechanism where the recipient of the good or service will have to pay GST, which is otherwise paid by the supplier. The charge is applicable on a registered dealer, if he buys goods from a dealer not registered under GST. However, the receiver of the good/service is eligible for input tax credit, while the unregistered dealer is not.
Registered taxpayers (supplier) were not willing to take the burden of paying tax, while small or unregistered taxpayers were running out of business as these registered dealers were hesitant to buy goods from them. Keeping this in mind, GST Council in October, 2017 had temporarily suspended RCM, as it was increasing compliance burden on taxpayers.
The idea was to discourage registered dealers to purchase goods or avail services from unregistered dealers, who are not under the ambit of GST or do not pay tax, which will ultimately boost the government’s revenue.
The first meeting of the GoM on reverse charge in April largely remained inconclusive. This will be the final meeting before the panel submits its report to the Council for approval. The panel will also explore if RCM should be applicable for dealers under composition scheme. In January, the Council had already decided to re-introduce RCM, but only for dealers under composition scheme — a simpler scheme for small taxpayer aimed at easing compliance burden.
However, some officials fear that the move can lead to more tax evasion as dealers under the composition scheme are anyway portraying negligible tax liability and liability to pay tax on reverse charge will only affect compliance. Another GoM on incentivising digital payments, also headed by Modi will be meeting for the second time and will look at offering discount to consumers making online payment.
The Council on May 4 discussed the proposal of a concession of 2 percent in GST rate (where tax rate is 3 percent or more) on B2C supplies, for which payment is made through cheque or digital mode. The ceiling for the discount will be capped at Rs 100 per transaction.
However, due to lack of consensus among states, Finance Minister Arun Jaitley had said that the GoM would deliberate on the subject and present their report to the Council in the next meeting.