Taxation is something that helps to function the government financially. In India, people pay close to 30% as direct ( Income tax) and indirect taxes (GST, CESS, TCS, TDS). All this taxation keeps evolving every year according to the financial metrics of the nation. Recently, the introduction of GST ( Goods & Service Tax ) created a fiasco in the business sector for its complex process and functions. But, there is something that needs immediate attention, GST is killing small businesses.
As the name suggests GST is the tax collected for the things you buy, sell or give a service for. Whatever you do government needs a part of it through taxes.
So, to simplify the taxation they introduced GST, nullifying the previous taxations like
By making one nation one tax, GST came with a huge tax percentage ranging from 3%, 5%, 12%, 18%, and 28% which is the highest.
GST is added when you buy and sell or give a service, the tax % is calculated according to the goods category. And for services, it is a flat 18% GST.
Like our income tax filing, GST has to be filed monthly or quarterly according to the business sales turnover with the respective GST number ( something like a pan card )
The tax collected through GST is shared equally with the central and state government, so if you pay 18% GST the tax is divided equally by 9% to the state and 9% to the central government. You must have noticed these terms representing SGST for state and CGST for the center in the invoices.
Assume, you have a legal business of steel trading where you buy and sell. When you buy and sell legally you need a GST number.
Consider GST number is something like your bank account number. With this account number, the GST you pay and collect will be posted in your GST ledger.
So when you buy steel for Rs 100000 from your supplier you pay 18% GST extra, and the total bill value will be Rs 1,18,000. Rs 18000 will be posted as input credit to your GST account. Let us call it as input tax ( the GST your pay when you make a purchase )
Consider you sold the steel with 2% profit ( yes, that the profit you get when you trade with metals). That is, you sold the steel for Rs 1,02000 + 18% GST, your customer will pay the total value for the invoice of Rs 120360. So when you make a sale the GST you collect is identified as output tax.
In the above transaction, you paid GST when you bought and your customer paid GST when you sold.
So, when you file your GST, you have to pay the extra GST collected to the government.
In this case, extra GST collected by you is Rs 360.
This is where the input tax and output tax calculation comes .
When you bought steel you already paid Rs 18000 as GST to your supplier ( input tax) and when you sold you collected Rs 18360 as the GST from your customer ( output tax).
GST collected = output tax – input tax ( Rs 18360 – Rs 18000 = Rs 360)
For collecting the GST the GST council has given tentative dates to file your sales and purchase data. Likewise, your supplier also has to file his GST in order to get your input tax.
This is basic structure of how GST is functioning.
Before GST, the same system was followed by VAT. Where you file your sales and purchase data and the extra tax amount you collect is given to the government. There is no extra liability in this process, what you collect from the customer you give it to the government. Everyone is happy.
In case if your supplier is not filing his sales data ( your input tax credit), the tax department will follow up and get it done or put a penalty for his actions.
For example, if your supplier dint file your GST for months and you filed it on time. You will be eligible to get only 10% of your input tax and you are liable to pay the input tax again on behalf of your supplier if he didn’t file the GST for months. So you end up paying Rs 18000 ( to the supplier first) + 16200( to GST again) = Rs 34200, where your profit was only 2000, if 10 suppliers forget to file their GST you end up losing your money from your pocket.
The GST council address that this methods was implied to minimize the GST input tax fraud.
But this puts a pressure on small time business people, because they have to check the filing history of the supplier, and follow with legal actions if the supplier doesn’t file his returns.
This seems to be a burden added to the small time business people.
The government issues GST to the people to do business and they are liable to verify the business credibility of the user, which they are not taking under consideration.
The government should propose a stringent action to the defaulters rather asking the business people to pay the GST again.
By this rule, the common people will suffer and only big corporate with large capital can survive killing small businesses.
This process is a major draw back in GST when considering VAT .
Hope the goverment rectifies and bring a fail proof system to do the ease of doing business.
Small businesses are the spokes of all micro-economy killing it will affect the economic pyramid. It is the government who should create an environment to grow.
