Govt may not implement reverse charge mechanism under GST: Report

The Goods and Services Tax (GST) has completed one year of its implementation but the government is likely to go slow when it comes to rolling out the reverse charge mechanism — a key anti-evasion measure proposed under the tax regime. It is of the view that the step is unlikely to provide significant revenue gains and could affect small businesses. However, the government is exploring for an alternative mechanism to curb tax evasion, reports Mint citing its sources.

The reverse charge mechanism is an arrangement in which entities registered under GST buying goods from small unregistered dealers will have to pay a tax on behalf of the latter.

The government, however, is concerned about the benefit of implementing the mechanism and thinks that it may disrupt small businesses without bringing any significant rise in revenue collections.

In talks with the publication, a senior government official said “We have to see till what extent it will help us in checking the tax evasion vis-à-vis revenue that it brings. Reverse charge mechanism may not detect too much tax evasion. It will make only a minor difference. As against that, the hassle it will create for small businesses is far more.”

The official further shared data, stating that around 1 percent of the 11.2 million taxpayers under GST pay around 80 percent of the taxes. It means, rolling out this anti-evasion measure will “harass more than 9 million dealers”, while bringing only a small revenue increase. In such a situation, “it is not worth it", said the official.

The reverse charge mechanism has already been postponed several times in the past year. The latest notification has further deferred its implementation till September 30.