Other proposals include switch to a cash-based
tax system from current invoice-based one.
By Deepshikha Sikarwar
New
Delhi: India is considering a goods and services tax (GST) relief package to
counter the impact of Covid-19 and help prop up the economy, said people with
knowledge of the matter. The package being considered could include a six-month
suspension of GST payments for the worst-hit sectors such as restaurants,
aviation and hospitality as well as a lower rate for the real estate sector.
Other
proposals include a switch to a cash-based principle of levying tax from the
current invoice-based system and providing GST relief on sales for which
payment is not received due to the lockdown by treating those as bad debts.
These measures are expected to ease the
liquidity pressure on businesses that are strapped for cash, said the people
cited above. A final decision on the proposals will be taken by the GST
Council, which is the apex decision-making body for the tax.
“There
is a thinking that for these service sectors, the government should at least
spare its dues,” a government official told ET.
The government could also consider exempting
them from other statutory charges for some time.
Though there has been a demand for complete GST
exemption, the government is veering around to the view that suspending the tax
will work better, the official said. Exempting a sector from tax would mean
breaking the credit chain, leading to further problems down the line.
Need
for Liquidity
A cash-based system will mean businesses pay GST
when they get the money and not when the invoice is raised, ensuring they don’t
have to pay the tax out of their pocket and get squeezed on working capital.
This is most relevant for services where payment is received with a lag after
bills are raised.
Most service providers are facing delays in payments from
clients but are saddled with GST liabilities. Another option is exempting these
from GST, treating them as bad debt.
“The idea is to provide some help to businesses
to sail through this crisis,” a second official said, adding that it is expected
that states will back the move in view of the unprecedented economic situation.
Tax experts said liquidity is among the
immediate needs of industry.
“At this time, industry needs more liquidity and
hence deferment in payment of GST for next few months (without interest) should
be considered,” said Pratik Jain, national leader, indirect tax, PwC.
While providing selective exemption is an
option, it often creates complications as input credit gets blocked, aside from
coping with the rigours of anti- profiteering provisions, he said.
“Since the point of taxation in GST is
effectively the issue of invoice, the suppliers pay the GST to the government
exchequer before they actually collect it from the customers,” said Bipin
Sapra, partner, EY, backing a cash-based system.
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