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India is considering a goods and services tax (GST) relief package to counter the impact of Covid-19 and help prop up the economy, said people with knowledge of the matter. The package being considered could include a six-month suspension of GST payments for the worst-hit sectors such as restaurants, aviation and hospitality as well as a lower rate for the real estate sector.
Other proposals include a switch to a cash-based principle of levying tax from the current invoice-based system and providing GST relief on sales for which payment is not received due to the lockdown by treating those as bad debts.
These measures are expected to ease the liquidity pressure on businesses that are strapped for cash, said the people cited above. A final decision on the proposals will be taken by the GST Council, which is the apex decision-making body for the tax.
“There is a thinking that for these service sectors, the government should at least spare its dues,” a government official told ET.
The government could also consider exempting them from other statutory charges for some time.
Though there has been a demand for complete GST exemption, the government is veering around to the view that suspending the tax will work better, the official said. Exempting a sector from tax would mean breaking the credit chain, leading to further problems down the line.
Need for Liquidity
A cash-based system will mean businesses pay GST when they get the money and not when the invoice is raised, ensuring they don’t have to pay the tax out of their pocket and get squeezed on working capital. This is most relevant for services where payment is received with a lag after bills are raised.
Most service providers are facing delays in payments from clients but are saddled with GST liabilities. Another option is exempting these from GST, treating them as bad debt.
“The idea is to provide some help to businesses to sail through this crisis,” a second official said, adding that it is expected that states will back the move in view of the unprecedented economic situation.
Tax experts said liquidity is among the immediate needs of industry.
“At this time, industry needs more liquidity and hence deferment in payment of GST for next few months (without interest) should be considered,” said Pratik Jain, national leader, indirect tax, PwC.
While providing selective exemption is an option, it often creates complications as input credit gets blocked, aside from coping with the rigours of anti- profiteering provisions, he said.
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Source : https://economictimes.indiatimes.com/news/economy/policy/govt-mulls-gst-relief-package-to-soothe-covid-pain/articleshow/75396150.cms?utm_source=newsletter&utm_medium=email&utm_campaign=Dailynewsletter&utm_content=Story5&ncode=0dbc743f7c513c6f34fbe3bfc44549f9
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