Page 46 - Banking Finance April 2018

FEATURE

GST: REVERSE CHARGE MECHANISM A CATCH-

22 SITUATION FOR SMALL BUSINESSES

W orried about the steadily declining goods made. The levy of reverse charge got extended from a few

and services tax (GST) revenue collection,
services to all unregistered goods suppliers and services
providers falling under the GST ambit.
the GST Council, in a meeting last month,
advanced the implementation of the e-way
bill for interstate movement of goods to 1 February from 1 But it failed to widen the tax base and added to the
April. The government suspects large tax evasion, especially compliance burden of companies already struggling to adjust
by small and medium enterprises, and feels this would help to the new tax regime, so, it had to be temporarily shelved.
check it.
Despite GST now being implemented for more than six
The next step to further plug this revenue leakage could be months, businesses continue to grapple with a slew of
reintroduction of the reverse charge mechanism. Here, challenges, raising doubts about the success of the reverse
large entities are required to pay taxes on purchase from charge implementation at this time.
unregistered smaller companies.
“The reintroduction of reverse charge on transactions with
In October, the council deferred implementation of reverse unregistered dealers would result in businesses having to
charge by six months. According to some media reports and make process and compliance changes. Some businesses
tax experts, the council may take a call on it at its meeting may not want to deal with unregistered dealers, hence,
on 18 January. many businesses which are below the threshold may end up
taking registration in order to ensure business continuity.
To put the issue in perspective, the concept of reverse
charge is not new. It has been in practice from the time Reverse charge is applied on certain transactions in the
service tax was introduced and was first applied to the European Union as well, but in India, it would be preferable
insurance sector, say tax experts. It was followed by covering to go in for a phased approach once initial hurdles are
mutual funds under its purview and gradually extending to overcome” said M.S. Mani, senior director (indirect tax) at
goods transporters, works contracts, sponsors and brand Deloitte Haskins and Sells Llp.
ambassadors.
While the number of registrations might rise once reverse
In the first two cases, the purpose of tax collection was met charge is implemented, it would not generate additional
to a certain extent because the nature of the industry is such revenue for the government because tax paid by the
where receipts are few and there are many providers. For recipient company on behalf of an unregistered supplier will
the rest, it was implemented because these industries were be given as input credit to the former, pointed out Anita
highly unorganized, add tax experts. Rastogi, indirect tax partner at PwC India. She suggested
scrapping of reverse charge on supplies from unregistered
When introduced under GST in July last year, an addition was dealers at least for the next three-four years.

46 | 2018 | APRIL | BANKING FINANCE