Keep it simple

GST incentive for digital payments not a good idea

Over the past few days, the GST Council has taken several decisions that are expected to make life simpler for a large number of companies, exporters and the trading community in terms of lower rates and a reduced compliance burden. Though a lot of ground still needs to be covered in order to remove some of the other imperfections in the structure of the goods and services tax (GST) and procedural matters, the government has been able to send out a clear message that it is alive to the concerns of all stakeholders and is determined to improve the acceptability of India’s biggest tax reform since Independence. Repeated meetings of the GST Council, the key decision-making body involving representatives from both the Centre and states, have taken steps to sort out the problems in the technological architecture and filing of returns. In that sense, the GST is a work in progress.

But every now and then, the government comes up with a surprise that is better avoided. According to a report published in this newspaper on Wednesday, the Centre is now proposing to offer a 2 percentage point GST rebate for consumers who make digital payments instead of cash. This proposal is expected to be taken up in January when the GST Council meets next. The reason for the proposed incentive is to encourage Indians to move towards a cashless economy. By itself, the idea to have less use of cash in the day-to-day functioning of the economy is unexceptionable; indeed, Indians have been increasingly moving towards digital payment portals as such avenues provide great convenience. However, regardless of the noble intentions, this proposed intervention is likely to create another round of confusion for all concerned. 

The move means that the effective tax rate for items in, say, the 18 per cent GST slab will come down to 16 per cent for those paying through the digital mode. But here is the rub: Implementing this will result in customers being offered two prices — one with the normal GST rate and the other with a 2 percentage point lower rate. Beyond the confusion that this will create for customers, the move, in turn, will require altering both the tax computation process as well as the return-filing templates. This will only complicate the ground-level implementation of the GST as sellers will need to segregate digital and cash transactions from the beginning. What further complicates matters is that this concession will be limited to Rs 100 per transaction and will not apply to retailers who have registered in the composition scheme, wherein they only face a single tax rate instead of the normal GST structure.

The government has repeatedly assured taxpayers that it is trying to make the GST a good and simple tax in the true sense of the term. A big step in this direction was taking the bulk of items out of the highest tax bracket of 28 per cent. There is a genuine intention to move towards a two-rate structure — possibly 12 per cent and 18 per cent. At this juncture, burdening the GST with additional demands such as these is clearly unwise. India obviously needs to move towards a less-cash regime, but the introduction of incentives that complicate things further is avoidable.