Kindly refer to my article – ‘India’s Macro-Economic & Financial Problems and Some Macro-Level Solutions’, published in September, 2021
BCAJ. Some professional colleagues and friends have opined that Fungibility of Direct and Indirect Taxes is never possible. No country in the World to their knowledge has such a facility given multiple difficulties etc. I accept their worthy views with a caveat that some country has to start. Why cannot India take the lead in this matter?
Others stated that my suggestion in the article is a solution that is self-defeating. The country loses out on Tax Revenues – Direct and Indirect and nobody gains in this matter. Please see the workings later.
My listing of benefits of tax fungibility is as under (from the above-published article):
1) Possibility of increased Income Tax Returns being filed by Individuals to claim the GST refund.
2) Widening of GST net due to individual income taxpayer asking for GST invoice.
3) The individual taxpayer MUST FEEL rewarded for filing income tax returns. Ultimately, Income Tax has always been a sensitive topic, and one must make the Tax Payer feel rewarded.
So far as individual income taxpayers are concerned, Indirect Tax is apparently unfair for B2C transactions (Business-to-Consumer). In B2B transactions, the business receiving goods and services is able to take an input tax credit of the same for its business and tax payment. While in B2C, this facility is not available. My proposal is aimed at making it
available.
Working:
By the working below, I wish to dispel this argument of Revenue Loss or no net increase in Tax Revenues. Note that this is only applicable to Individual Taxpayers filing ITRs 1 – 4.
Case: Individual ‘A’ (based on the old tax regime of income tax)
|
1
|
Total annual income
|
Rs 22.00 lakhs
|
|
2
|
Taxable annual income
|
Rs 20.00 lakhs
|
|
3
|
Income tax payable
(@ 21% tax rate (slab computation)
|
Rs 4.20 lakhs
|
|
4
|
Income available for annual spending (2-3)
|
Rs 15.80 lakhs
|
|
5
|
Amount spent
(assuming 80% spend on goods and services
and balance 20% savings)
|
Rs 12.64 lakhs
|
|
6
|
GST invoices available
(on 80% of total purchases)
|
Rs 10.10 lakhs
|
|
7
|
Value of purchases
GST paid on purchases
(at 15% average GST rate)
|
Rs 8.80 lakhs
Rs 1.30 lakhs
|
When filing the Income Tax Return, the individual taxpayer MUST show the amount of GST paid Rs 1.30 lakhs and claim an applicable Income Tax Refund. It is my view that even a 100% GST setoff will not impact Income Tax Revenues but will increase Income Tax Returns filings and add to GST revenues.
Note: Lower the value and percentage of GST Invoices, lower the GST set off against income tax payable. Individual purchasers/Buyers will insist on GST Invoices.
MECHANISM
To all those who already have PAN Cards and are filing any of the above 4 types of Income Tax Returns, the Income Tax office can send out a special code that is linked to the assessee’s PAN Card Number.
Those who have not filed their returns in the past MUST do so for availing GST setoff /refund and make an application to the Income Tax Authorities for the special code.
Every time a GST invoice is collected this special code must get referenced and scanned. That is the responsibility of the purchaser to show his special code card which the seller will scan and link with the GST Invoice. This can be done with safeguards and conditions that are easy to fulfill such as payment via debit/credit card/UPI/Electronic mode and even a threshold per transaction to start with.
Through the above referenced individual code, the Income Tax authorities must capture the GST paid by the individual as they are capturing the other Income and TDS thereon.
This collated information about sellers giving GST invoice details should also go to the GST authorities. They can then find out who is filing GST Returns and who is not. Is the GST paid by the seller in line with the Sales
Invoice details given by the purchaser? An App or other modes of technology for this purpose could also come in handy.
As stated by me in the September, 2021 BCAJ article, the Revenue authorities must do some original thinking. There is a possible solution which MOST IMPORTANTLY favours the individual income tax payer. This must not be refrigerated but be worked on for 2023-24 implementation.
The key issue we are facing is the issue of Equity for the individual income taxpayer. Already, with Agriculture income out of ambit of the Income Tax Act, there is a high sense of frustration that large landowners and wealthy agriculturists are conveniently excluded.
Note: The author wishes to thank the members of the BCAJ Editorial team for value-added interventions to the article.
