Hindustan Times (Lucknow)

Govt plans differenti­al rates for delayed GST

- Rajeev Jayaswal rajeev.jayaswal@htlive.com

NEW DELHI: The government may levy differenti­al rates of interest on taxpayers for delayed payment of Goods and Services tax (GST) in an attempt to prod businesses to pay their taxes on time and to boost revenue collection, two officials said.

The interest levied could be 18% for the first three months and 24% thereafter. The government will charge the interest on the net GST amount and not on the gross amount as has been the case so far, said the officials cited above, requesting anonymity. Taxpayers have so far been paying interest on the full amount without adjusting for the input tax credit.Under the existing law, late payment of tax attracts a flat rate of 18% interest.

The proposal to levy a differenti­al rate of interest has been referred to the Law Committee of the GST Council before it is considered by the Council, which oversees the indirect tax regime introduced in July 2017. The decision on charging interest on net amount of GST has been taken already and the law has been amended accordingl­y. The amendment will be notified soon, the officials said.

The Law Committee has an advisory body, which has about two dozen members, mainly tax officials representi­ng the Centre and states.Email queries sent to

the Central Board of Indirect Taxes and Customs (CBIC) and the Union finance ministry did not elicit any responses.

The proposed move is aimed at prodding businesses to pay tax on time and to boost revenue collection, officials said. Goods and Services Tax (GST) collection in August this year dropped by 3.8% to ~98,202 crore compared to the previous month, the lowest monthly collection in first five months of the current financial year.

Pratik Jain, partner and leader of the indirect tax practice at PwC India, said interest is charged in cases of delayed payment of tax or reversal of credits in certain cases.

“The proposed differenti­al interest rate system seems to be a measure to curtail extent of tax evasions/delayed payment (as interest rate would be higher post a specified period of time) as well as a method of {inducing an} increase in revenue collection­s,” he said, adding that the move would also raise expectatio­ns of the industry to get a higher rate of interest in case of a delay in refunds by the government.

Experts sounded a note of caution on the proposed differenti­al interest rate regime.

“This would not be the first time that the government is considerin­g levying differenti­al interest rates on delayed payments,” said Mekhla Anand, a partner at the law firm Cyril Amarchand Mangaldas. “An interest rate correspond­ing to the period of delay was introduced under the erstwhile service tax regime as well. However, this experiment was rolled back in 2016 and a uniform interest rate was introduced again.” The differenti­al tax was rolled back due to operationa­l reasons, officials quoted above said.

The government would be required to amend the law to put in place a differenti­al interest rate regime, said Vishal Raheja, deputy general manager of the tax research and consulting firm Taxmann.

“Currently, there is cap of maximum 18% interest for delayed payment of GST. If the government wants to impose higher rate of interest for delay exceeding three months, there would be requiremen­t of amendment to GST Act,” he said.

Experts said the move to charge interest on net instead gross amount of GST was a relief to businesses. “Currently, the interest on delayed payment is charged on gross GST amount. In terms of the Finance Act, 2019, the GST legislatio­ns have already been amended to levy interest on the net tax liability only i.e. the amount which is paid by debiting the electronic cash ledger after setting off the input tax credit. However, this amendment has not yet been operationa­lised,” said Anand.

Raheja said, “This amendment is very logical as it is very harsh to charge interest even if a taxable person has ITC [input tax credit] balance in credit ledger.”

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