The West Bengal government has strongly objected to the proposal by the group of ministers (GOM) on goods and services tax (GST) incentives for digital payments, saying it would worsen the shortfall in GST revenue, which has so far been below expectations.
The state finance minister, Amit Mitra, shot off a letter to Sushil Modi, chairman of the GST Implementation Committee, in this regard ahead of the GOM meeting which was held in Delhi on Friday evening.
“If the central government feels strongly about incentivising digital payments, it may consider other non-tax related incentives like reduction in convenience fee and other charges, etc. which may be better instruments than linking it to GST. I feel that GST incentives for digital payments in the manner proposed should not be introduced. Further, the tax-related incentives for digital payments are totally unrelated activities,” Mitra said in the letter.
As per the GOM’s proposal, the ambit of the incentive will be reduced from all digital payments to UPI, BHIM, USSD and Rupay card payments. The GOM has proposed the incentive through refund to the consumer as a percentage of the tax paid rather than a reduction in tax rate. It has proposed a refund of 10% of the total tax paid, subject to a cap of Rs 100 on each bill.
“The revenue implication of this limited incentivization has been assessed at Rs 1,636 crore, which by no means is insignificant. This will further aggravate the shortfall in GST revenue which so far has been below our expectations,” Mitra said in the letter.
“Since the advent of GST, there have been frequent changes in the procedures and rates. The industry and businesses are struggling to cope with these frequent changes. I feel that thrusting another change on them will further delay the GST consolidation process,” he said.
The West Bengal finance minister said he presumed that UPI, BHIM, USSD and Rupay have been chosen on the belief that digital payments through these modes are popular in rural areas. “However, the ground-level reality is very different. Large number of Rupay cards are still lying with banking correspondents in the vast unbanked areas without brick and mortar branches. Most shops and establishments in the rural and semi-urban markets are not equipped with point of sale machines, where cards can be used. The density of usage of these cards is highly skewed in favour of urban areas,” he said in the letter to the chairman of the GST Implementation Committee.
Therefore, Mitra said, the move would mainly benefit the “e-literate, urban and better-off population” and not the actual targeted population which continues to use the manual mode of payments. “The proposed refund based incentive system is bound to be complicated considering that 31 states and central government are involved. A pool of fund will have to be provided through which incentive will be dispersed. Considering that the funds will move from consolidated fund of the state/Centre, the entire tax machinery will be bogged down by this onerous task,” he said in the letter.