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Can GST Bill really kill the ‘kachcha bill’ system?

GST impact on loose bills

Speaking on the passage of the GST Bill in Parliament, Prime Minister Modi acknowledged the existence of the ‘kachcha bill’ system in India with a touch of humour. While the attending Parliamentarians responded with equal humour, the sheer magnitude of money that bypasses the government exchequer each year is no laughing matter.

India has a massive parallel economy where ‘black’ money circulates in serious volumes along with ‘white’ money with government being the biggest loser. So, can the GST Bill really kill the kachcha bill system? The Prime Minister seems to think so but many economy experts believe otherwise.

What is a kachcha bill ?

As consumers we are all familiar with the handwritten bill/receipt that the local shopkeeper gives us when we make a purchase. The bill is a ‘kachcha’ one since the shopkeeper does not record the transaction in his book of accounts and therefore, does not pay any tax to the government on that transaction.

Trader  denies the government the due taxes and we, the people, in turn, are most affected, since less money collected by the government means less money available to spend on public services and infrastructure that we keeping demanding from the government.

So who is to blame for this? Is it the trader, the government or we the consumers? In many ways, all three. The trader most willingly offers a kachcha bill to consumers since he would not have to pay any income tax to the government on that transaction.

Lack of proper checks and balances in the tax imposition and monitoring systems leads to opportunities for traders and other similar businesses to get away with tax avoidance. And lastly, we consumers must also take the blame as we are willingly participants by accepting a kachcha bill from the trader.

 The trading community have a point

Traders, shopkeepers and similar businesses often complain that it’s the customer who demands a kachcha bill, either to avoid or re-negotiate a smaller amount of tax. This forces the trader to comply as the customer threatens to go to another trader, if they don’t. Many traders are willing to work under a ‘proper’ bill system but it’s the presence of other unscrupulous traders that continue sustaining the parallel economy.

The unscrupulous ones use consumer greed effectively. The few customers who do happen to ask for a ‘bill’ are promptly told that they will need to pay up an additional 12.5% or whatever is the applicable tax. On hearing the same, most customers very gladly accept a kachcha bill and go back happy on having saved the tax amount.

But in the end, common citizens are the ones that suffer the most due to lack of government investments in public welfare schemes and infrastructure, and therefore, we consumers must accept a large part of the blame for sustaining the parallel economy which continues to deny the government its legitimate share of revenue. We only end up hurting ourselves while the traders lose nothing.

Can GST really end the kachcha bill system?

GST will usher in an era of uniform tax imposition, greater transaction visibility and therefore higher tax collection which will be supported by an easier tax filing regime. While it is true that the GST Bill will go a long way in expanding the tax collection base, its success will depend upon the rate of tax that will be decided finally.

For GST to be truly effective, it important for the tax rate to be kept at a minimum. This will act as an incentive for both consumers and traders to collect and submit taxes. This will also encourage more businesses to come under the tax regime.

States are resisting this as they believe that keeping a low tax rate will deny the states crucial revenue that they need to sustain their existing administration and public services. States do not realize that if the tax collection base widens on account of low tax rate, the overall revenue received by state governments will rise substantially and far exceed their existing volume.

The Congress party has been pushing for a flat 18% rate while most states are lobbying for rates in the region of 22%-24%. A higher tax rate will certainly act as a disincentive to many existing businesses that currently remain outside the tax system.

Take the real estate industry. This is one of the largest sectors that generates huge volumes of unaccounted money. Almost all real estate transactions involve a large percentage of unaccounted or ‘black’ money changing hands.

The buyers who pay in cash need to look for opportunities to access cash, while the builders need to look for opportunities to invest and deploy that cash. In between, the entire supply chain of material suppliers also get involved in sustaining the parallel economy.

This needs to stop and unless tax rates are kept within affordable levels and backed with an easy and transparent system for filing taxes, GST Bill alone will not be able to achieve the results the central government is hoping for. This could well become another white elephant or at best, a partially successful regime.

The GST Bill can be a game changer for all stakeholders but only if we are all committed to becoming part of it and take a long term view of the benefits.

Here, the states that are resisting a lower tax regime need to be pragmatic, keeping in view the long term gains. The central government in any case is willing to compensate the states for a period of five years for any losses on this account.

Time to say ‘NO’ to the kachcha bill

It is time all citizens commit themselves to saying ‘No’ to kachcha bill. In the end, it’s the consumer that can make the biggest difference. As India moves towards a cash-less economy where digital money transaction is fast becoming mainstay, the parallel economy will find it more difficult to sustain.

GST is a great opportunity to support this and we, as consumers, must commit ourselves to saying ‘No’ to the kachcha bill. If that happens, then we can all pat ourselves on the back when we see the next new metro line, a better railway station or a swanky new hospital coming up in our city, because somewhere down the line, we made it happen. Isn’t that reason enough?

Source : http://www.mapsofindia.com/my-india/government/can-gst-bill-really-kill-the-kachcha-bill-system

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