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Final tax collection should be preferred policy and not first collect then refund or allow credit- for simplicity and also to avoid chances of tax rackets |
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Final tax collection should be preferred policy and not first collect then refund or allow credit- for simplicity and also to avoid chances of tax rackets |
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Earlier articles on similar subject matter: For benefit of revenue collection and easy administration: ADVANCE TAX IS BETTER OPTION THAN TDS / TCS. An Article By: - CA DEV KUMAR KOTHARI September 3, 2019 LEARNING FOR REVENUE FROM RECENT RULING - RECEIVER NOT TO ESTABLISH PAYMENT BY SUPPLIER OR SERVICE PROVIDER SO FINAL COLLECTION OF TAX IS PREFERABLE. An Article By: - CA DEV KUMAR KOTHARI December 2, 2013. Article on related subject: In earlier articles different aspects have been discussed in details therefore, in this article some basic points are discussed in brief. Policy of first collect and then allow credit and /or refund: We find that the policy of first collect and then allow credit and / or refund is preferred by the governments in India, in direct and indirect taxes. It appears that due to bureaucratic approaches and preferences such policies are continuing and scope is widened. This may be due to reason that such practices allow more points of actions on part of taxpayers, more formalities, more procedures, more delays and defaults and more scope of penalty proceedings etc. Many cases of TDS/ TCS, Sales Tax Service Tax, GST frauds and rackets are reported in news reports. Tax defaults, tax rackets and revenue leakages: The policies of first collect and then allow credit and / or refund have caused possible leakage of revenue by tax defaults, tax rackets. Final tax collection can be better option: Final tax collection can be better option for governments and tax payers. We find example of policies in relation to dividends. Earlier when TDs was applicable on dividend, lot of paper work was involved and there were defaults and difficulties both for tax payers, TDs receivers, and tax officers. After introduction of tax on dividends at distribution stage, collection and administration have become easy for taxpayers and government both. Input tax credit: Input tax credit (ITC) is another major area in which policy of first collect and then allow credit and / or refund is adopted. This is on lines of some of earlier policies like MODVAT, CENVAT. Instead of ITC, final tax collection can be adopted to simplify tax collection and administration. For example a large unit who have to pay huge GST is also availing ITC and after that balance amount is to be paid. We find many cases in which ITC is much higher then GST payable, In such cases, ITC is availed and no tax is payable. Rather un availed balance of ITC is carried forwarded for availing in future. This can be simplified by exempting such units from paying GST on input and make responsible to pay entire amount of tax payable on their sales and services supplied to others. Another example is services provided by professionals like CA, CMA, CS, Engineers to companies and firms engaged in business. Most of GST paid t these professionals is eligible for ITC in hands of service receiver. Therefore, all such professionals can be exempted from GST. Similarly ancillaries and supporting units who are mainly supplying goods and services to another major units can be exempted from GST on supplies made to other large units. The result will be that supply of goods or service receiver will pay higher GST because ITC will be reduced due to exemption granted to suppliers of major units. Recent empirical studies: In recently filed ROI for year ended 31032019 we can notice that many manufacturers, large dealers large service providers have substantial ITC available which is carried forwarded. The ITC was brought forwarded from earlier year , ITC was availed during the year on inputs , ITC was adjusted against GST payable and in many cases no GST was payable at all because ITC available was much higher, and ITC balance is carried forwarded. In case of new units, expansions, major capital expenditure, higher inventory of finished goods held, seasonal industries, and cases where lower rate of GST on output is applicable, ITC is much higher than GST payable on supplies made to others. In all such cases, GST exemption on inputs can be granted in relation to supply of goods and services received so that un-necessary paper work is reduced and ultimate GST collection is made from few responsible persons. For example, as a beginning all PSU, manufacturing companies, banks, Financial institutions, insurance companies, mutual funds, telecommunication companies, companies and firms liable to GST payable on their out puts can be exempted from GST on input supplies of goods and services. When no GST will be levied on their inputs, ITC will be reduced and they will pay GST on their output. Tax rackets: Many tax rackets have been suspected and might have taken place due to policy of first collect then allow credit and / or refunds. Rackets in area of TDS and TCS were also in news. Now rackets of GST are with huge volumes of tax evasion suspected. Search on this website in news with “tax racket” on 16112019 at 13:01 hours author found 11 results the period range is 07012017 to 15112019. These are only illustrative and not exhaustive. Besides these 11 cases there are many other cases of reports and investigation of tax rackets. These 11 cases do not include old cases of tax rackets. There have been reports about TDS/ TCs rackets. There have been cases and litigation about allowing credit for TDS/ TCS, indirect taxes based on certificates issued by concerned or invoices etc. In these litigation, revenue have been looser, because a person who has paid tax on invoice or from whom TDS/ TCs have been effected cannot be held responsible for default of other party. On reading of these news reports and other similar reports in past and as per empirical experience author observe that many of these reports may ultimately be found not sustainable and mere gossip. The revenue may not earn revenue, however litigation will take place. Some of these reports may be due to bias, conjecture and presumptions of tax authorities and also based on statements obtained from concerned persons by way of undue influence, coercion, and pressures etc. exerted by tax authorities. If policy of final tax collection is adopted, many of such cases of tax rackets will not be possible.
Some of these news reports are reproduced below with highlights added: Tax Management India .com https://www.taxmanagementindia.com Racket of issuance of fake invoices involving GST of ₹ 22 crores busted Income Tax Department busts a major racket of bogus billing & hawala transactions Racket of Issuance of Invoices Without Actual Supply of Goods Busted In Delhi dt. 16-09-2019 Brief highlights of the recent searches in NCR, Bhopal, Indore and Goa dt .09-04-2019 GST Act violation: HC dismisses advance bail pleas dt. 14-02-2019
By: CA DEV KUMAR KOTHARI - November 19, 2019
Discussions to this article
This seems an alternative option that may prove to be better than the current tax credit mechanism. In my view, there should be flat rate of GST on goods or services tha should be considered by the supplier to pay his tax. The tax rate should be less as input tax credit will not be allowed. If product is exempt no GST. And if the supply is taxable pay only some percentage of tax. This would prove beneficial to lot of taxpayer who pay tax on procurement but there is no GST on final product.
Further I believe that GST payable responsibility should be cast on the supplier. Straightly he should calculate some percentage as GST on taxable turnover and pay to the govt. He should not charge GST on the invoice. Every tax payer will pay some percentage of tax as per schedule that may be provided. This way the set off claim of the taxpayer will go away.
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