Several aviation, hospitality, and telecom companies are facing the dual burden of paying Goods and Services Tax (GST) dues in cash even as input tax credits keep piling up, stretching the working capital cycle at these companies, and creating cash-flow problems. As per the GST framework, the burden of tax payments on certain services and raw materials used in the input or making of the product is one the buyer.
This GST cost is then set off and passed on to consumers when they buy these services. However, the GST on input services and raw material has to be paid first. This reverse charge liability has to be paid in cash. Due to the Covid-19 pandemic, companies facing revenue hit can’t pass on this GST cost to consumers. Even so, they have to pay the tax on raw materials and input services in cash, say, industry trackers.