Goods and service tax will create an all round difference in the economy as well as in the functionality of business units and in this matter, a various lower business might try to bring down their actual income in the bracket of 20 to 50 lakh in order to save 1-2 percent over the generated tax obligation. However, the compliance strictness will certainly benefit the firms and all the business units in gaining cheaper capital and decreased input cost in the long term while in the short term, it may degrade them to be less competitive as transiting from unorganized to organized.
In the current scenario, the government authority has freed and exempted all the businessman with the business capacity under 20 lakh for registering under the GST framework but the worth noticing fact is that the business unit is free to join if want to get the input tax credit. As experts say that business units having income above Rs. 50 lakh may under-report the income and can try to steal the taxes. Abhishek Rastogi, partner, Khaitan and Co, “You may have cases where small businesses will try to evade the system. Say, there is a family owned business worth around Rs 90 lakh annual income. It may try to pass off as two separate businesses owned by family members, each worth Rs. 45 lakh, just to pay lower taxes under the GST.”
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As there will be a mandatory shift towards the organized sector which will demand small business units to accommodate themselves thereby increasing the compliance cost. This will be the main reason of evading the taxes by under-reporting. Neelkanth Mishra, India equity strategist with Credit Suisse, “People will continue to try to game the system like they do now. However, as upstream compliance improves, the number of such businesses under-reporting income will decline. In the long term, such a move will be detrimental for enterprises whose only source of competitiveness is tax evasion.”
