IT MSMEs Speak about the New Proposed GST Rules

Many electronic and digital products are set to be placed in higher GST category, while the reseller community wants a relief.

The GST Council has sought the opinion of the state government about reconfiguring the GST rates of many goods, including many electronic and digital products, real estate related products and FMCG products. It is reported that the GST Council has sent the recommendations of the new rates to the states for their consideration.

On receiving their response, the new rates are expected to come into effect soon.

It is to be noted that in 2019 before the last General Elections, rates had been reduced and now the rates are proposed to be reversed and brought into higher rates cagories.

Move from 18% to 28%

Many goods are sought to be moved from the erstwhile 18% category to the higher category of 28%.

These include Monitors, Smart TVs (Below 32 Inches), Digital Camera Recording Devices including the Web-Conferencing Devices, Smartwatches, Power Banks and other electronic devices.

It is reported that some states have raised concerns about this proposal, in the light of rising inflation. The Wholesale Price Index-based inflation rose to 14.55% in March 2022, while the retail inflation in March rose to a 17-month high of 6.95%.

If the rates rise at this juncture, it is going to cause a lot of hardships to the people.

The increased GST collection in March 2022 as against previous years is being seen as an indicator of growth in the organised segment of the economy and a result of anti-evasion measures, including action against fake billers.

GST collections rose to an all-time high of Rs 1.42 lakh crore in March 2022, a 14.7% rise from March 2021 and a 45.6% rise from March 2020.

“GST on services should be 5%, not 18% in a competitive market.”

--A Service Provider

“It makes better sense if both goods and services in the IT sector are moved to 5%, to avoid complications in billing if the goods are at 18% - 28% and after-sales services at 5%. Services without sale of goods should be at 5%.”

--A Reseller

“GST on all goods as well as services should be reduced. The budget of the clients is limited and the actual sale is reduced because of the high GST rate.”

--A Reseller

Problems of the Resellers and Service Providers

The reseller community seems to have mixed feelings about the proposed measures to raise the GST rates of many electronics goods. While they understand that GST is a means of the government to increase its revenue, there are some resellers who feel that GST rates should be overall reduced, whether in sales or in services. Those in the services segment feel that GST on services should be 5%, not 18%, as in a competitive market 18% is a high rate for service providers. 

There is a dissatisfaction because the actual sales of goods and services is overall reduced because the budget of the clients is limited and hence, they tend to purchase less. Another problem is that if services are moved to 5%, then there has to be a separate billing for services, which is not possible. Hence, the resellers feel that it makes sense to move both the goods and services in the IT industry to 5%. For service providers who are not selling products, it makes sense to keep their services at 5%.

The government wants to increase its GST collection by moving many items to a higher category. However, it is bound to have an adverse impact on the economy, as the consumers are already burdened by a slowing economy and a rise in inflation rate. In the event of a rise in GST charges, the consumers will limit their purchase of goods and services to the bare minimum. This will result in the lowered gains for the sellers and will also harm the economy.

The solution to this is not to raise the tax burden on the already burdened consumers, but to reduce it. all complicated tax laws should be done away with and a general, flat-rate of 10% tax, to be returned once annually for all whose annual earning is more than Rs 2.5 Lakhs is more likely to make the people more willing to pay taxes. There will be much less tax evasion if the tax burden is only 10%. A good government should lift the economic burden on the people, not to saddle them with higher taxes.

Read more from Dr Archana Verma here 

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