The Goods and Services Tax (GST) Council on August 4, 2018, gave a green signal to the proposal to offer GST cashback of 20 per cent to micro, small and medium enterprises (MSMEs) on the transactions made through RuPay and BHIM platforms, subjecting to a cap of ₹100 per GST transaction.
This comes at a time when the monthly collection target of ₹1 lakh crore from GST was not met in July in spite of the collection exceeding ₹96,000 crore. A team of ministers under Bihar deputy chief minister Sushil Modi also found out that if the cashback scheme was implemented, the government would be losing ₹1,000 crore annually. In such a scenario, why has cashback on online payment of GST been introduced by the government?
Why cashback on GST introduced
According to Finance Minister Piyush Goyal, the move “will be a step towards the formalisation of the economy.” Tax experts are of the opinion that it will limit the revenue impact and will help MSMEs to grow. The government at the moment seems to adopt an inclusive attitude by not ignoring the small businesses – the MSMEs form an important section of the Indian economy where about 8 per cent of India’s GDP comes from them. One should not forget that this sector also provides a lot of employment.
The move by the government will also help increase the digital payment platforms, which will in turn help check red tape and middlemen. This would also encourage rural and semi-urban areas to opt for cashless transactions. Another advantage of the scheme would be increasing the tax payers’ base that would eventually help in increasing the revenues generated from tax.
Benefits of GST cashback on digital payment platforms
Some of the effects on consumers, once the decision is implemented, are:
- Incentive on Digital Payments: Small taxpayers i.e. MSMEs are considered to be the employment generators, so they need to be given importance in form of incentives in order to create more employment and thus, help in the growth of the economy.
- Minimization of Losses for Small Taxpayers: It has been found that to avoid losses, some 50 per cent of the small taxpayers avoid paying tax. The move will help tackle such situations. It will encourage people in rural and semi-urban areas to opt for cashless transactions.
- Formalization of Economy: Businesses who pay more tax and businesses (MSMEs) who generate employment will be given equal importance so as to bring in more revenue to the government in the form of tax.
- Reduction in Overall Tax Burden: With the implementation of the GST in the country, consumers have seen reduction in overall tax burden. Different schemes and policies issued by the government is helping consumers to get maximum benefit from GST.
Uttar Pradesh, Bihar, Maharashtra, Gujarat, Tamil Nadu and Assam have opted to join the digital incentives pilot project.
Eligibilty for GST cashbacks
Once implemented, the micro and small and medium enterprises who pay through Rupay card and BHIM UPI would get a cash back of 20 per cent of the total GST amount, subject to a maximum limit of ₹100.
Acording to the MSMED Act 2006, MSMEs are defined on the basis of capital investment made in plant and machinery, excluding investments in land and building. As per the Act, manufacturing units with investment below ₹25 lakh come under Micro, those between ₹25 lakh and ₹5 crore come under Small and from ₹5 crore to ₹10 crore come under Medium. Similarly, in case of Service units, corresponding investment thresholds were upto ₹10 lakh for Micro, between ₹10 lakh to ₹2 crore for Small and between ₹2 crore to ₹5 crore for Medium.