Click here to know more about digital GST rate.
What is the issue?
- Union government has proposed a 2% discount in GST for consumers who make digital payments.
- Incorporating a digital GST rate for every digital transaction is going to be a huge challenge.
What is significance of digital GST rate?
- The proposal is likely to be taken up in the next GST Council meeting in January.
- The incentive will be available to business-to-consumer (B2C) transactions for goods and services that face a GST rate of 3% or more.
- The incentive will include a 1% concession on the Central GST and another 1 per cent on the State GST.
- The move means that the effective GST rate for items in the 18% slab will come down to 16% for those paying through digital mode.
What are the concerns with the move?
- The concession will be limited to Rs.100 per transaction, this implies that goods and services bought up to Rs.5,000 per transaction will enjoy the full 2 percentage point concession of Rs.100.
- The cap of Rs.100 per transaction is too less to induce taxpayers accustomed to cash to switch over to digital.
- The proposal will not apply to retailers registered under the composition scheme.
- Customers will be offered two prices, one with the normal GST and the other with two percentage points lower GST for digital payments.
- This would need some alteration in the tax computation process and the return filing templates.
- GST is still a new law and revenue collections are oscillating substantially,it is too early to offer such incentives under a tax law.
What are the expected challenges?
- Providing a 2% rebate is going to further reduce collections from GST which could impact the coffers of the Centre and the States.
- In turn, this would force the Government to tap into the Compensation Cess for monetary comfort.
- The taxpayers with turnover of less than Rs.1.5 crore are most likely to conduct some transactions in cash.
- The condition not to extend the scheme to taxpayers registered under the composition scheme could actually turn out to be counter-productive.
Source: Business Line
